Chapek Defends 38% Hike on Ad-Free Disney+; Ad Tier Bows Dec. 8

The Disney+ ad-supported VOD tier, branded Disney+ Basic, goes live Dec. 8 at $7.99 a month with a “thoughtful approach by launching with a lower ad load and frequency,” said CEO Bob Chapek on an earnings call Wednesday for fiscal Q3 ended July 2 . The ad-free tier, Disney+ Premium, will increase to $10.99 from $7.99 when Disney+ Basic debuts.

Disney+ ended the quarter with 152.1 million paid subscribers, a 31% year-over-year increase, and 14.4 million more subscribers than in fiscal Q2. “Strong” Disney+ core net subscriber additions of 6 million in Q3 reflected “growth in existing markets as well as launches in over 50 new markets,” said Chief Financial Officer Christine McCarthy. “We currently expect Disney+ core net additions in the fourth quarter to accelerate modestly versus Q3 and particularly in the domestic market,” she said.

Disney’s “core Disney+ subscriber target range” is to add 135 million to 165 million new accounts by the end of the fiscal year in October 2024, “excluding the impact of any significant future macro headwinds,” said McCarthy. The forecast is “largely consistent with previously provided guidance” that non-Disney+ Hotstar accounts in 2024 will account for 60%-70% of the expected 230 million to 260 million total Disney+ subscriber base, she said.

“We remain confident that Disney+ will achieve profitability in fiscal 2024,” said McCarthy. “Several upcoming catalysts” toward profitability include “reaching a steady state of tentpole original content releases, delivery of premium general entertainment and international local originals” and the launch of the AVOD tier “alongside the new pricing structure,” she said.

Disney can defend the 38% price hike for the ad-free Disney+ tier because the service launched at an “extraordinarily compelling price,” said Chapek. “We're probably the best value in streaming, and since that initial launch, we've continued to invest handsomely in our content,” he said.

Disney believes, based on the increase in its content investment over the past 2.5 years “relative to a very good price point, that we have plenty of room on price value,” said Chapek. “We do not believe that there's going to be any meaningful long-term impact on our churn as a result.”

The company is “walking before we run" on "seeing what the market will bear” in the Disney+ Basic ad load, said Chapek. Its posture will be “very conservative upfront,” he said, predicting “more ultimate elasticity” in the ad load “as we go forward.” The advertising demand for Disney+ Basic is “great,” he said.

Disney is committed to running no ads with Disney+ Basic content targeted to kids and preschoolers, “at least at the launch,” said McCarthy. “This is going to be done very thoughtfully, and looking at the content and also making sure that the advertiser is consistent with the content,” she said.