In just five short years from the first launch of its streaming video service, Disney overthrew Netflix as the streaming video juggernaut.

Disney’s third-quarter 2022 financial report released on August 10 showed that Disney+ subscribers increased by 31% year-on-year to 152 million, higher than analysts’ previous forecast of 147 million, plus Disney’s other two major streaming video subscription services Hulu. And ESPN+, Disney’s total streaming subscribers reached 221.1 million, surpassing Netflix for the first time, which last reported a total of 221 million subscribers.

Netflix delivered a better-than-expected earnings report this quarter on the back of Stranger Things, but Disney is clearly doing better, with Star Wars series Obi-Wan Kenobi and Marvel’s Marvel “Girls” hit, Disney+ added 14.4 million new subscribers in a single season, far exceeding Netflix’s growth figures for the same period.

It’s also worth noting that Disney raised the price of its subscription service again this quarter, by nearly 40%. At the same time, like Netflix, Disney also announced the launch of a cheaper version of the subscription service with ads, and the new policy will be implemented in the United States from December.

01 Revenue of US$21.5 billion exceeded expectations, and theme parks fully recovered

Streaming media subscription services continued to maintain high growth, coupled with the full recovery of the theme park business, which was hit hard by the epidemic in Europe and the United States, Disney ushered in a wave of small outbreaks in the just past third fiscal quarter.

According to the financial report, Disney’s third-quarter revenue was $21.504 billion, a year-on-year increase of 26%, higher than market expectations of $20.96 billion; adjusted diluted earnings per share were $1.09, a year-on-year increase of 36%, higher than market expectations. 96 cents. Disney shares rose 7% after the market, but the gains fell back after the opening bell. The second trading day (August 11) after the earnings report was released, the stock price rose 4.68%.

Divided by business, the media and entertainment business revenue was US$14.11 billion, an increase of 11% year-on-year; the theme park, experience and product business revenue was US$7.394 billion, a year-on-year increase of 70%. Disney said that Disneyland, Walt Disney World and four other Disney resorts in Europe and Asia have performed well, with meet-and-greets, theatrical performances and nighttime events returning to theme parks, with park attendance, lodging and cruises Both sailing rates have increased, and the new Genie+ and Lightning Lane have helped boost per capita ticket sales during the quarter.

Genie + is an add-on service, $15 per person per day, you can pre-select the facility in the app, and use the Lightning Lane (Lightning Lane) to quickly pass the customs at the selected time to experience the facility immediately, without queuing, and there is also a single trip The paid-for express customs clearance service (Individual Lightning Lane), even without the additional purchase of the Genie + service, can also be purchased separately, and the cost ranges from $7 to $14 per person.

Disney said per capita spending at theme parks in the fiscal third quarter rose more than 10% year-over-year and was up 40% from the same period in fiscal 2019. Among them, the domestic theme parks performed well, and the domestic hotel occupancy rate in the third fiscal quarter was 90%.

Disney’s chief financial officer Christine McCarthy noted on the call that the domestic theme park business showed a continued slow recovery in international travelers. Traditionally, international visitors have accounted for 17% to 20% of total park admissions. “We expect profits to surge when international travelers fully recover, as international travelers stay in the park longer and are more willing to spend in the park.”

But given that inflation and economic pressures in the U.S. are likely to peak in the second half of 2022, analysts warn that a worsening economy could directly impact ad revenue for the big streaming platforms in the coming quarters, taking a toll on the parks business. trouble.

02 The total number of subscribers surpassed Netflix for the first time

In addition to the recovery of theme parks, the biggest highlight of this earnings report is that Disney has surpassed rival Netflix in the number of streaming subscribers for the first time.

The financial report shows that in the third quarter, Disney+ subscribers increased by 31% year-on-year to 152 million, higher than the 147 million expected by analysts according to StreetAccount data, plus Hulu’s 46.2 million subscribers and ESPN+’s 22.8 million subscribers, Disney said as of this It ended the quarter with 221.1 million streaming subscribers, higher than Netflix’s 221 million streaming subscribers.

During the reporting period, Disney+ subscribers increased by 14.4 million following the launch of Star Wars series “Obi-Wan Kenobi” and Marvel series “Ms. Marvel”, exceeding the increase expected by data analysis firm FactSet 10 million.

Among the new users, 6 million are the core Disney+, and 8 million are Hotstar, which is a regional service launched by Disney for the South and Southeast Asian markets, and the price is relatively low.

Disney previously won the 2023-2027 TV rights to the Indian Premier League, India’s hottest sporting event and far more popular than any other, but withdrew from the streaming rights due to high prices. The auction, and the broadcast rights eventually fell to Viacom 18, the media joint venture of Ambani, India’s richest man. More than a third of Disney’s previous total of 137.7 million subscribers were in India. Without the copyright of this event, the appeal of Disney+ in the Indian market will probably be eclipsed a lot.

Disney CEO Bob Chapek said on the conference call that India’s pay-TV distribution remains a strong business, “It is expected that GDP growth will drive advertising and consumer spending. In fact, India is the only place where we are launching new linear channels. one of the markets.”

Affected by this, Disney has lowered its guidance for Disney+ users in fiscal 2024 to 215 million to 245 million, a decrease of 15 million from the previous lower and upper user expectations. Previously, CEO Bob Chapek announced at the end of 2020 that he would strive to reach 230 million to 260 million registered users of Disney+ by September 2024.

While Disney is attracting new subscribers, streaming giant Netflix is ​​losing old subscribers. After losing 200,000 paying subscribers in the first quarter of this year, Netflix lost another 970,000 subscribers in the second quarter. Netflix hopes to offset the loss of revenue from the cancellation of membership services by some users by introducing an advertising-accepting user tier, and has selected Microsoft as a global advertising sales and technology partner to launch a lower-priced version of the service with ads around early 2023, However, the new subscribers gained to make up for the loss are obviously less valuable than the subscribers that were lost before.

PP Foresight analyst Paolo Pescatore called this “a pivotal moment in the streaming wars”, and he sees Disney having more room to grow than Netflix, a result (where Disney surpasses Netflix in total subscriptions) “a strong emphasis on my beliefs.” , i.e. Disney and Netflix are in different stages of growth”. “Millions of subscribers will still be acquired as Disney continues to expand into new markets and launch new blockbuster shows.”

In 2017, Disney began to build a streaming service. At the beginning of 2019, Disney terminated the content licensing agreement with Netflix. In November of the same year, Disney+ was launched. With the blessing of Hulu and ESPN+, the number of subscribers exceeded Netflix in less than three years. In the future, Disney may also continue to “win” over Netflix.

Compared with Netflix, Disney has a deeper content IP reserve and a more mature business model.

First of all, from the perspective of IP reserves, Disney not only has Mickey Mouse and his friends, Winnie the Pooh, Disney Princess, The Lion King, Frozen, Crazy Zoo, Invincible Destruction King, Super Marines, Dumbo, Caribbean Pirates and other own IPs; also owns a large number of IPs brought by the acquired Pixar brand, including Toy Story, Cars, Incredibles, Finding Nemo, more than 5,000 IP copyrights under Marvel, Star Wars IP from Lucasfilm, 21 Century Fox’s “Avatar”, “Alien” and “Rise of the Planet of the Apes” series IP…

Meanwhile, Disney continues to develop new IP, spending more than $1 billion on content in the third quarter. Some of the high-profile Disney+ series currently in development include “Percy Jackson and Olympia,” “National Treasure: The Edge of History,” “Nautilus,” and a new season of “The Big Duck.” The streaming service will also be home to new Star Wars and Marvel series, including Hulk: Attorney, Daredevil, Rebirth, Season 3 of The Mandalorian and Planet The Great War: Skull Corps.

In contrast, Netflix does not have a deep enough content library, despite the occasional hits such as “House of Cards”, “Squid Game” and more recently “Black Money Place”, “Stranger Things”, “Stranger Things” even more The better-than-expected boost in Netflix’s number of paying subscribers in the second quarter, but the accumulation of IP influence will take a long time, and Disney is well ahead of Netflix at this point.

Secondly, from the perspective of business lines, Disney+ is only one of Disney’s many monetization methods. As the epidemic eases, other direct-to-consumer businesses may perform better in the future, and Disney has multiple film producers. Factory, the ABC network, ESPN and other cable/satellite channels, Disney theme parks and Disney cruise lines, there are many sources of revenue.

In contrast, Netflix’s business model is very single, and the vast majority of revenue comes from user subscriptions. The core of the competition for users of streaming media video platforms today is content competition. Disney, which has a more mature business model, can invest more resources in content production, and thus have more opportunities to create better content.

03 Rising content costs push new pricing plans

Although the situation is better than that of Netflix, Disney itself faces a series of challenges, the most direct of which is the rising cost of content.

The financial report shows that in the third quarter, Disney’s streaming media businesses Disney+, Hulu and ESPN+ lost a combined $1.1 billion, mainly due to the increase in the cost of service content; direct-to-consumer operating loss rose from $293 million to $1.061 billion One hundred million U.S. dollars. Disney’s average revenue per customer in North America also fell 5% during the quarter as more customers opted for cheaper products. Still, Disney is sticking with its goal of reaching streaming profitability by 2024.

In order to boost revenue and in response to Netflix’s new strategy of pushing low-cost subscriptions with ads, Disney also launched a new pricing plan called Disney+ Basic during the quarter.

Starting December 8 in the U.S., the price of a Disney+ subscription with ads will rise to $7.99 per month, equal to the current subscription price of Disney+ without ads, with about 4 minutes of ads per hour, which are divided into 15 seconds and 30 seconds. The currently ad-free Disney+ will be rebranded as Disney+ Premium, and the monthly fee will increase by 38% to $10.99.

Disney’s CFO Christine McCarthy noted that Disney+ will have less ad frequency than Hulu, adding that Disney+’s losses are expected to peak this year. Hulu’s pricing plan has also changed. Starting October 10, the monthly fee for the ad-free version will increase from $12.99 to $14.99; the monthly fee for the ad-free version will increase from $6.99 to $7.99.

In addition, the price of subscription packages that include Disney+, Hulu, and ESPN+ will also increase. Among them, the price of an ad-free subscription package will rise to $14.99/month, while the price of an ad-supported subscription package will rise to $12.99/month.

Although the price increase has increased the revenue per user, it may also cause the loss of some users, which is related to the decrease of Netflix subscribers. The revenue from ad tapes may also be a drop in the bucket for streamers. After its second-quarter earnings report, Netflix said it plans to spend about $17 billion on content over the next few years. According to foreign media estimates, the increased advertising business is expected to generate only $1 billion in revenue for Netflix each year.

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