Analysts Hammer First Disney+ Sub Growth Miss Since 2019 Launch
Financial analysts spared Disney little lenience for reporting the first quarterly Disney+ subscriber growth miss since the streaming service’s November 2019 U.S. launch. Disney+ ended fiscal Q2 April 3 with 103.6 million paid subscribers, increasing by nearly 9 million sequentially from Q1 but shy of consensus estimates of more than 109 million for the end of the quarter.
Disney+ subscription growth “should have benefited" from launching the first two TV shows from the Marvel Cinematic Universe franchise and the Premier Access release of Raya and the Last Dragon, "all of which were high-quality content,” said Cowen Friday. Disney+ needs to add a quarterly average of at least 9 million subscribers for the next 14 quarters “to reach management's targets, and as the service gets more penetrated, the pace of adds is likely to slow down,” it said. Disney’s publicly stated goal is to reach 230 million to 260 million paid Disney+ paid subs by October 2024.
On any Disney earnings day, the market “becomes focused on one single metric: Disney+ subscriber growth,” said MoffettNathanson Friday. “Nothing else seems to matter,” especially when the Disney stock “exploded higher and higher” with each new disclosure of robust Disney+ subscriber adoption, it said. “We are hopeful that some of that froth will be taken out of the stock as investors process slowing Disney+ subscriber growth.”
Disney added Disney+ paid subs “at a faster pace in the last month of the second quarter” than in the first two, said Chief Financial Officer Christine McCarthy on a Thursday earnings call. Disney+ had “no major market launches” in fiscal Q2, plus it imposed price increases in the U.S. and in Europe, the Middle East and Africa during the quarter, she said. The Disney+ Hotstar streaming service in India was about a third of the total Disney+ subscriber base at the end of the quarter, but average revenue per subscriber at Disney+ Hotstar “was down significantly” compared with Q1, due partly to the impact of COVID-19 in India, she said. Disney+ ARPU of $3.99 at the end of Q2 was $3.99, but $5.61 with Disney+ Hotstar excluded, she said.
The Disney+ price hikes in the U.S. and EMEA were the first “since we launched,” said CEO Bob Chapek. “I have to say that we're extremely pleased with how the market reacted to both,” he said. “We've not observed any significantly higher churn rate.” Of the various Disney+ subscriber growth “drivers” moving forward, the “content slate” will be key, he said. “We're spending a lot of money across our variety of franchises, in order to create the content that's going to keep consumers coming back.” Expansion into new markets, including Malaysia June 1 and Thailand June 30, will be another growth engine, he said.
Disney is sticking for the time being with the Premier Access strategy it used for the Disney+ release of Mulan and Raya as a $29.99 option, even as theaters reopen amid the relaxing of COVID-19 restrictions, said Chapek. The studio will “try to release things” theatrically and “reprime the pump” for movie audiences, but it recognizes that for consumers who are “a little leery still about going into a packed theater,” Premier Access gives them the option to watch feature films “in the safety and convenience of their home,” he said.
The company hasn't announced “exactly what our strategy is going to be” beyond this fiscal year about which titles will be theatrical plus Disney+ Premier Access, which will be direct to Disney+ and which will go directly to theaters, said Chapek. “But know that we'll continue to watch the evolution of the recovery of the theatrical marketplace, and we'll use that flexibility to make the right call at the right time.” Last weekend’s box office was 85% below pre-pandemic volumes in the U.S. and 67% below them internationally, he said.