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18 April 2019

Big concerns over Disney+ ARPU as pricing revealed

Just as another NAB show closed out a week to the day, Disney leapt back into the limelight by unveiling pricing details for Disney+, the streaming service set to debut in a little over six months. In doing so, it gives us an early indication of how much money Disney+ is set to make by factoring in subscriber projections – some cautiously level-headed and others wildly bright-eyed.

One from our very own research arm Rethink TV recently projected Disney+ to reach 50 million subscribers by the end of 2024, a share of approximately 12.5% of the total global audience by this time. So, assuming that most subscribers will opt for a monthly payment of $6.99 (over the discounted option of $69.99 for a full year), we can calculate basic monthly subscription revenues of $349.5 million – meaning approximately $4.2 billion over a full year period at 50 million subscribers.

But then of course this figure is merely the foundation, showing only the very basic ARPU – considering Disney+ is expected to adopt a tiered package approach covering basic, standard and premium plans like most SVoD platforms today.

Other forecasts for Disney+ go as high as 90 million subscribers by 2024 and the company itself has estimated an unhelpful swing of somewhere between 60 million and 90 million by 2024, meaning an annual basic subscription revenue of $7.5 billion if we take in the top end of this in-house forecast.

For some context, Netflix’s original content spend is projected to peak at $15 billion this year, $3 billion more than in 2018, and the SVoD champion has dutifully sacrificed profitability for growth – which is why we don’t see Disney+ being near profitably even by 2024. Some extra context from Rethink TV, while we’re at it, shows streaming revenues accounting for just 5.1% of Disney’s total video revenues by 2024, compared to 8% for AT&T, 6.6% for Comcast and obviously 100% for Netflix. This goes into much greater detail forecasting out Disney’s full revenues, accounting for additional bread bringers in the house of mouse like the sports streaming service ESPN+, Hulu, its movie theater takings, as well as traditional cable TV revenues.

Yet even going by these more optimistic forecasts, still financial industry analysts are skeptical about Disney’s decision to aggressively undercut Netflix by almost half, considering the standard Netflix plan now costs $12.99 a month and rising incrementally around the world. BTIG analyst Rich Greenfield has taken particular issue with Disney’s discounted $69.99 annual subscription offer, amounting to $5.83 a month, saving 17%. He said while the discounted offer for Disney+ will likely be an effective method for reducing churn, but the allure of a monthly fee will appeal mostly to higher earning households who are less likely to churn in the first instance. A good point.

Netflix, in comparison, surpassed 90 million subscribers in 2016, growing to approximately 150 million today. Appetites for premium OTT video content today are indeed much more ravenous since the days when Netflix’s online video business began gaining traction, but still a run rate of 18.8 million a year is a big ask for Disney+, particularly considering it will launch only in the US first and is likely to go global towards the end of 2020.

One golden nugget of a finding within the recent Rethink TV report shows a disappointing Disney ad curve dropping off slightly from 2019 to 2024, but this is hardly unexpected given how subscription revenues will soar drastically. The pleasant surprise will be the strong anticipated growth in subscription revenue on the back of strong performance by Disney+.