Disney announced its results for its latest quarter this week. Parks and tourism developments have shown improvement in numbers, with revenue growing by 99% as visitors return to attractions. But Disney+, the company’s big bet during the pandemic, has taken a hit. The streaming platform added just over 2 million subscribers in the quarter ended October 2.
According to the company, the total number of customers reached 118.1 million. Analysts expected it to hit 125.3 million. In the previous quarter, Disney+ had won more than 12 million contracts.
Disney’s numbers are a wake-up call about risks on the way to streaming. One of the keys to the rapid growth of the company (and other competitors) was what many saw as “buying” subscribers. Aggressive promotions, very low prices and service combos with value below cost.
Another strategy is to acquire competitors. In India, after purchasing Hotstar, in April 2020 Disney launched Disney+ Hotstar. In September 2020, the same thing happened in Indonesia. According to Disney, revenues in these markets are significantly lower than those in the rest of the world, although around 25% of its users are in these regions.
Netflix: expensive, but doubles revenue
When Netflix announced a price hike in the country, its competitors took to social media to announce discounts and tease, but the numbers are clear. Netflix didn’t grow as it would have liked, but with releases like Round 6, it managed to maintain acceptable growth, despite a considerable slowdown.
By comparison, in the first half of this year, Netflix’s average revenue per subscriber (Arpu, or average revenue per user) was more than double that of Disney+. Mickey’s streaming ARpu – excluding Hotstar in India – at mid-year was $5.61 per month, while Netflix’s average revenue per user in the US and Canada was $5.61 per month. $14.25 per month. From the middle of the year, average Disney+ revenue drops 9% if Hotstar joins the account.
Disney Chief Executive Bob Chapek said the company runs its direct-to-consumer business “for the long term, not quarter to quarter.” The executive, which has been criticized for its tough attitude and focused on cost reductions with which he leads Disneysaid Disney+ is still on track to hit its previous goal of 230 million to 260 million subscribers worldwide by the end of fiscal year 2024.
Disney+ continues to make losses
The number of subscribers and the year 2024 are important because, in Disney’s plans, they represent the start of the platform’s profits, which have been losing since its launch. Netflix only started turning a profit last year after more than a decade in the red.
Disney hopes to reverse the downward trend by increasing releases this quarter of the year, as Netflix also promises. This Friday (12), the Disney has announced several new featuresalthough he has already advanced that he will postpone certain productions expected to 2022.
“The fourth trimester [de 2022] this will be the first time in Disney+ history that we are planning publish original content from Disney, Marvel, Star Wars, Pixar and Nat Geo. This includes highly anticipated titles like Ms. Marvel and Pinocchio,” Disney Chief Financial Officer Christine McCarthy said during the company’s earnings call.
The executive added that the company expects Disney+ subscriber additions in the second half of fiscal 2022 to be significantly higher than in the first half.
Competition and rising costs
Content sales and licensing revenue increased 9% to $2 billion, but higher operating and marketing costs led the division to an operating loss of $65 million for the trimester.
This is another pitfall for media companies. The more the battle for viewers’ attention and time intensifies and the more competitors invest, the higher the costs of retaining and attracting viewers in cinema and streaming.
One of the criticisms leveled at Disney+ by analysts like Barclays’ Kannan Venkateshwar is that by focusing on its franchises and making few releases, Disney is no longer appealing to a larger, adult audience.
Another problem is that when big bets like Black Widow and Eternals don’t take off, lost money and time are hard to recover.
In this regard, Netflix has another advantage. By becoming profitable, the streaming leader has more free capital to launch more diversified and attractive content for the public and even have surprises like the Round 6 audience phenomenonproduced at a fraction of the cost of a major Disney franchise.
For many, the natural path is for companies to seek profit by cutting discounts, promotions and co-selling to attract subscribers, as Disney+ has done since its inception. On the other hand, they must follow the example of Netflix and, in the medium term, increase subscription prices to balance the accounts.
Of course, it is possible to argue that Disney+ is just a way to attract more visitors to parks and tourist attractions, in addition to selling more products. But the 9% drop in Disney shares on the stock market the day after the announcement of the results shows that shareholders have a different opinion.
Disney enters the metaverse
Chapek has signaled that he has plans for the metaverse. However, he ended up becoming a joke on the networks by showing little intimacy with the theme and saying that Disney+ is Disney’s metaverse, but he doesn’t imagine people experiencing it in augmented reality.
Apparently Chapek forgot that Disney works with augmented reality projects and the metaverse without augmented reality loses its main interaction factor, more or less like a park without toys.
As streaming becomes more expensive and competitive, and Netflix consolidates its lead, don’t be surprised if media companies start talking more and more about the Metaverse as the next big thing and put streaming on the back burner. Many giants will fall into pitfalls along the way or find new success stories to tell.