Disney+ Day finally arrived on Thursday, and following a lengthy presentation packed with lots of details about pricing, programming and financials, many analysts are increasingly bullish on Disney’s direct-to-consumer plans.
Disney+ is launching in the U.S. on Nov. 12, and will be priced at $6.99 per month or $69.99 per year. International market launches across Asia and Europe will follow through 2020 and 2021. Disney+ will have a big film library, including classic Disney films and all the Star Wars trilogies – implying that Disney has bought back from AT&T’s WarnerMedia rights for the early Star Wars films. In its first year, the service will also release more than 25 original series and 10 original films. By year five, the number of original series is anticipated to be more than 50.
Disney also is weaving in content from its newly acquired 21st Century Fox assets including exclusive streaming access to all 30 seasons of “The Simpsons” and films like “The Sound of Music” and “The Princess Bride.”
Disney+ will be available on mobile and connected TV devices, gaming consoles, streaming media players and smart TVs. It will support 4K HDR video playback and offer all content for offline viewing.
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For analysts, it was the competitive pricing and financial projections that sparked the most confidence in Disney’s pivot to streaming. Disney provided subscriber growth projections for Disney+, along with Hulu and ESPN+ and, if true, Disney’s total DTC subscriber base could push past 160 million over the next five years. The company said Disney+ will grow to between 60 million and 90 million subscribers, Hulu will grow to between 40 million and 60 million subscribers (it’s currently at 25 million), and ESPN+ will grow to between 8 million and 12 million (it’s currently at about 2 million), all by 2024.
Disney+ is expected to be profitable by 2024, and ESPN+ is expected to be profitable by 2023. Hulu, which has been a significant money loser for Disney, Comcast and AT&T, is projected to see its operating losses peak this year at $1.5 billion and then achieve profitability by 2023 or 2024.
UBS media and telecom analyst John Hodulik said Disney did not provide specific guidance on forgone licensing revenues (outside of $2.5 billion for Disney+), but his firm believes Disney's commentary suggests a longer tail to content licensing than it had previously modeled.
“While not providing specific EPS guidance we believe management has given enough detail to help investors model near term earnings trajectory, while showing confidence in the long term subscriber opportunity,” wrote Hodulik in a research note.
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While admitting that Disney+ is by no means an apples-to-apples comparison with Netflix, Barclays analyst Kannan Venkateshwar pointed out that Disney+’s subscriber growth model for the first five years is two-times to three-times what Netflix accomplished in the same time period.
“However, Disney is also guiding to this growth path with an investment scale that is meaningfully less than Netflix. Overall, therefore, we believe Disney’s subscriber framework sets the company on a relatively aggressive growth path in the coming years which should help pivot near term valuation focus to sub growth,” wrote Venkateshwar in a research note.
He also noted that, with Hulu’s recent price reduction to $5.99 per month, the cost of Disney+ and the base Hulu service tier combined is equal or less than cost most Netflix subscribers currently pay.
Venkateshwar said though that Disney treating a reduced-price bundle of Disney+, ESPN+ and Hulu as an “afterthought” could come back to bite the company.
“We believe this approach is likely to play into the hands of distributors such as Comcast, who may end up becoming better aggregators of Disney’s OTT services than Disney itself,” wrote Venkateshwar. “This is one aspect of Disney’s go-to-market strategy that will need to be fine-tuned over time in our opinion, to help drive down churn, reduce SAC (subscriber acquisition cost) and drive more upside.”
MoffettNathanson offered up some projections for Disney’s direct-to-consumer business and, at least in the near-term, the segment is going to be a cash burner. The firm expects DTC losses will be $3.8 billion this year (thanks largely to Hulu) and will climb to $4.9 billion in fiscal 2020. After that peak, the firm expects losses to improve, scaling back to $1.2 billion for 2023 before swinging to a profit in 2024.