In the world of corporate strategy, CEOs and other high-level executives make key decisions that truly impact a bottom line. You won’t see CEO Bob Chapek and team issuing the directive to up the price of chocolate-covered peanuts at the parks by a dollar. Because no matter how delicious, the effect on the bottom line is just… peanuts.
The initial strategy for Disney+ when it first launched was to sneak into our consciousness with a low price point. There was competition with Netflix and Hulu (which Disney+ subsequently bought). Netflix had a higher price point, as the company didn’t have the luxury of its own content. Plus, the service needed to work out the kinks. Who else found themselves with issues on the first few days of their Disney+ subscription?
Little did Disney, or anyone probably for that matter, know that the subscription service would take off. Maybe Jon Favreau and Baby Yoda did… hope they are getting a percentage!
Now, there are a lot of things to think about with this exponential growth. This includes the initial launch in foreign countries, as well as promotions like Verizon offering Disney+ as well as including the Disney bundle with their promotions.
QUICK ASSUMPTIONS BEFORE WE GO ANY FURTHER
Now, let me set some quick assumptions before I go any further. The upcoming price hike is not one dollar across the board. You might be on the yearly plan, the Disney bundle, or in another country paying a different rate. For this exercise, I’m going to assume that the price of everyone’s subscription is going up one simple US dollar. I’m also going to use the number 85 million subscribers. #KeepItSimple. I’m also only going to look at US vs US.
Going up against Netflix, they actually do have some money to adjust their price. I know nobody wants to pay more. Compared to the Netflix Standard Plan, which seems to be an apples-to-apples comparison when you consider HD and the number of screens you can watch on, Disney+ is at $6.99 and Netflix is at $13.99 at the time of writing — almost half the price. Disney does have room to play for the extra dollar ($7.99), and I’m guessing they may see what happens to the subscriber base after the increase.
There are some other competitors at play as well, including Apple, Peacock, and HBO Max. It’s tough to determine if any of these are cannibalizing Disney’s subscriber base currently. Paramount will be entering the fray as well, as we saw in the numerous Super Bowl commercials. Apple TV has not announced numbers, and Peacock has 33 million subscribers. It has not been announced how many are paying for Peacock, but Comcast stated that it generated $100 million in revenue.
There are a lot of things that may affect Disney+ in the future, including the eventual end / loosening / return to normal, non-COVID lockdowns. Will everyone shed streaming companies, and which one will go at it?
BACK TO THE DOLLAR
I’ve been stalling a little bit, trying to cover the points that everyone was thinking, but let’s look at that dollar increase in the monthly subscription. Only the dollar at 85 million monthly subscribers.
So, that dollar — it’s $12 when you think of the year. Have you thought about what 85 million subscribers multiplied by $12 is? I’m going to include all the zeroes here… the math equals $1,020,000,000. More than ONE BILLION DOLLARS.
How many Disney movies have made over one billion dollars? From this businessinsider.com article that I found from 2019, seven. Star Wars: The Rise of Skywalker, Aladdin (live action), Toy Story 4, Captain Marvel, Frozen II, The Lion King (live action) and Avengers: Endgame. (Throw in Spider-Man: Far From Home and Joker). These are box-office revenues, and don’t include merchandising, DVD sales, and all that good stuff.
You’re probably saying that these are all fairly recent, and Disney can make a “dollar” by just producing good movies year-after-year. That is a true and valid point. However, the billion raised by the 2021 price increase will happen year-after-year just by keeping the subscriber level at 85 million.
ANOTHER WAY TO LOOK AT IT
Grab a dollar out of your wallet. OK, you don’t have to. But play along in your mind. We are going to look at it in terms of just one person.
After the price hike, you will be sending 96 of those George Washingtons to Disney for one year of Disney+.
96 bucks. The gamble, in terms of profit alone, is that Disney will be getting more from you in terms of Disney+ rather than in terms of the profit they’d make from you going to the movies or buying DVDs. In a non-COVID year, how many times would you get to the movie theater? How many times would you buy a DVD or rent a video from Redbox? Is that one Blockbuster still in business?
Now, us Disney fans probably are on the high side of the 96 dollars anyway. Four movie tickets and a couple of DVDs a year would probably synch it on the profit margin for TWDC. Remember, don’t count the hot dogs, nachos, and things like that… that is profit for the movie theaters themselves.
Chapek and team have to look at the numbers and see who they can pull up from the sub-96 dollar category in a non-COVID year.
You have to look at the numbers also as non-COVID or “as close to back to normal as humanly possible,” because just maybe… movie theaters will bounce back. All of these steaming companies, Disney+ included, have seen massive success during the pandemic because it’s at home entertainment.
WILL THE PREMIUM ACCESS MODEL WORK?
With Mulan, Disney offered “premium access” to view the live action movie. Chapek said in a quarterly investor call that you will see “premium access” movies released more often. Although the next big movie, Soul, was released with no additional charge.
Chapek said that the Mulan premium access was successful, but had a negative impact from the controversy regarding thanking the Chinese government in the credits.
Soul was seen as a value-add for those subscribing to the service.
In my opinion, you will probably see a balancing act between movies getting premium access and those coming to the service for free. In essence, the premium access can be considered “free money” for the company — truly no additional cost. The movies that are available immediately provide the customer service Disney is known for. (They’ll go above and beyond, but don’t expect a meal at Victoria & Albert’s when the Teacups go down.)
THINGS I OMITTED
There are still a lot of factors and revenue streams that I did not mention in order to keep the explanation simple. I know, I know. As well as ESPN, Hulu, and more. Licensing to Netflix and other outlets. Trying to keep it simple.
IN THE GRAND SCHEME OF LIFE
Back to the dollar. I previously only mentioned the one dollar increase, which resulted in a billion dollars to the bottom line of the company. Let’s look at the overall, soon-to-be $8 per month for Disney+. Remember, I’m keeping the math simple.
That $8 per month times 12 is $96 per year for each subscriber. That $96 times 85 million subscribers is, gulp, $8,160,000,000. That’s just this year. The end goal is even bigger than that. Disney wants to hit 230-260 million subscribers by the end of 2024. Just think about the per year math on that.
The author, at time of writing, has a few shares of Disney in his stock portfolio. He wishes he had more. “I wish I may, I wish I might, Have the wish, I wish tonight.”