Disney’s upcoming branded streaming service will likely be priced around $5 per month in order to drive wider adoption, according to MoffettNathanson analyst Michael Nathanson.
Nathanson said that the new Disney streaming service and the upcoming ESPN streaming service need a clear distinction. The ESPN service will likely test different prices as it prepares ESPN to be ready to go fully over-the-top, according to the report, but the Disney service is about building asset value instead of taking licensing money from SVOD deals.
“As we’ve pointed out in all of our work on vMVPDs, pricing matters and consumers have signaled that internet-delivered services should be priced materially below traditional products to drive broader adoption. Disney’s pricing strategy will be a key gating factor in determining the rates of adoption. If there are truly complementary services, it would be logical to offer a lower price point to consumers to denote the ‘add-on’ intention of Disney vs. a higher price point, would could signal a replacement option,” wrote Nathanson.
At $5 per month in ARPU, Nathanson sees revenues from the Disney streaming service ranging from $34 million to $38 million in the first year and more than $230 million by year three.
But with the loss of Netflix licensing revenues and accelerated marketing costs for launching the new service, Nathanson predicted Disney’s losses will increase by about $200 million to $425 million per year.
“We expect the loss to ramp in FY 2020 with the first full year of lost Netflix Pay 1 revenues negatively impacting Disney plus higher marketing costs leading to a net after tax loss of $280 million. Similarly, we expect the investment costs to increase in FY 2021 offset by higher OTT revenues leading to after tax loss of $260 million.”