From the Investor Calls: Is Disney OK?

Streaming execs had good news, but what’s happening at Disney?

Over the past few weeks, the entertainment mega-corporations completed their quarterly investor calls. Here’s our take on where the streamers are at heading into the Fall.

In this issue:

  • Streaming through the strike

  • Direct-to-consumer live sports? Yeah, it’s a thing

  • Ads and price increases are good business (Surprise!)

Strike? Whadya mean there’s a strike?

Everyone had some variation of the “we love writers and actors” statement they had to make to keep negotiations on track. But you don’t have to look too deep to see where things really stand. According to AMC Networks CEO Kristin Dolan:

“The reality for AMC Networks is that we have a pipeline of finished shows that will allow us to continue to serve our viewers across all of our platforms for the remainder of this year and well into 2024.”

Paramount CEO Bob Bakish went even further:

“We have more than 85 international scripted and unscripted Paramount+ originals already produced, in production or greenlit, as well as more than 20 local versions of global unscripted formats slated to debut through 2024. In fact, we just announced a slate of internationally produced originals coming to Paramount+ in the U.S.”

As I wrote a few issues back, the actors and writers must stand strong into 2024 before they can weaken the studios’ negotiating power.

Bringing sports into the walled garden

Disney CEO Bob Iger stated the obvious in his prepared remarks: “Taking our ESPN flagship channels direct to consumer is not a matter of if, but when.”

However, shifting the sports network from linear cable TV to a direct streaming model won’t be cheap. So the company is looking for one or more partners to take on some combination of the distribution, marketing, and content production costs.

The fact is Disney will be late to the game. NBC owner Comcast and CBS owner Paramount already blend live sports into their streaming strategies. Comcast President Michael Cavanagh called sports a “great driver” of Peacock subscriptions. Likewise, Bakish explained how sports is “integral” to the Paramount+ strategy:

“People assume that sports viewers come in during the season and then they disappear. But the reality is sports viewers are not just sports viewers. They like other forms of content…. As long as we can get them to engage with 1 or 2 additional titles … the churn rate drops dramatically.”

Warner Bros. Discovery’s co-CEO and streaming chief Jean-Briac Perrette was more coy about live sports on Max, saying they’ll have “more to say later in the year.”

Maximizing viewer revenue

Earnings calls being what they are, there were several conversations about how streamers will get more money — either from advertisers or from subscribers.

Pushing everyone to the ad plan

Streamers report that ad-supported plans generate more revenue per user than subscription tiers. The simple answer is to get more people onto the ad plans, which Disney’s Iger said straight up: “We’re obviously trying with our pricing strategy to migrate more subs to the advertiser-supported tier.”

That plan seems to work as the Disney+ ad-supported plan represents 40% of new subscribers.

Rather than nudging people through pricing, Netflix pushed them over the cliff. Canceling its $9.99 monthly ad-free tier forced price-sensitive customers to the $6.99 ad-supported plan.

What if we charge this much?

Of course, raising prices is the easiest way to get more money. Warner, Comcast, and other streamers talked about the ongoing benefits of their early 2023 price increases.

On the other hand, Disney announced new prices taking effect in October. An ad-free monthly Disney+ subscription will go up 27% to $13.99, while an ad-free monthly Hulu subscription will rise 20% to $17.99. Iger confidently explained to investors that, despite raising prices in nearly 50 countries, “the impact on churn and retention has outperformed our expectations.”

Our takeaway: No surprises, but is that a hint of trouble at Disney?

As they should be, most of this month’s earnings calls were extensions of last month’s calls. However, we might be seeing some cracks in Disney’s business.

For all the headlines about taking ESPN direct, Disney is still late to the game. Peacock and Paramount+ already integrate live sports coverage. The fact that Disney is shopping for “partners” means whatever it does won’t show up until 2024 or later.

And Iger’s confidence in the Disney+ price increases conveniently overlooks historical details. The streamer telegraphed its December 2022 price increases 4 months in advance. Subscribers received a constant stream of Disney+ emails promoting the annual plan as a way to lock in the older prices.

When most of those late-2022 subscriptions expire, the monthly rate will be 75% higher than people remembered. Now multiply the sticker shock by Disney’s slower content schedule.

I think the math is hard to pencil out. Sure, families with kids are stuck paying the House of the Mouse. But people who subscribed for peak Star Wars and Marvel content? Binging a month here and a month there will make more sense than dropping to an ad-supported plan you never use. Sorry, Mr. Iger, churn and retention are going up.

The Watchlist

Becoming a teenager is hard enough without your best friend kissing the boy you like. You Are So Not Invited to My Bat Mitzvah comes to Netflix, Friday, August 25th.

In this summer heat, staying hydrating is very important. And what better way to do that than by drinking fruit-flavored water? Hint offers 8 flavors of fruit-infused bottled water without any added sugars or diet sweeteners. Get 45% off your first order + free shipping when you use the code SWAPSTACK, and add something tasty to your water intake!

Vacations are best spent with your closest friends, right? Vacation Friends 2 is landing on Hulu, Friday, August 25th.

Fantasy series The Wheel of Time returns with its second season on Friday, Sept 1, on Amazon Prime Video.

Your favorite baby tree is back with a whole series of new shenanigans in I Am Groot season 2, coming to Disney+, Wednesday, September 6th.

Self Reliance follows a man who finds out there’s a lot to live for after entering a reality game show that’s life or death. The film comes to Hulu on Friday, September 8th.

Apple TV+’s newest series, The Changeling, starring LaKeith Stanfield and Clark Backo hits the streamer, Friday, September 8th.

Daryl Dixon finds himself in France on the brink of an autocratic movement in The Walking Dead: Daryl Dixon premieres on AMC and AMC+, Sunday, September 10th.

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