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Walt Disney Co. told investors it has seen the future of its business — and it is squarely on digital devices.
The media giant DIS, +0.17% on Thursday said a slate of big-budget movies — including “Raya and the Last Dragon” in March 5 — will open on its burgeoning streaming service and in theaters as part of a direct-to-consumer push. In coming years, Disney+ will be home to a firehose of 10 new Marvel series, 10 new “Star Wars” series, 15 animated and live-action Pixar and Disney series, and 15 Disney-Pixar films that will be newly branded as Disney+ Original.
During a four-hour virtual extravaganza, the spotlight was on Disney+ as the 97-year-old company navigates a national pandemic that has seriously undercut its traditional businesses. Disney also provided growth updates on its other streaming platforms, including ESPN+ and Hulu, and a new general entertainment offering, Star, set to debut overseas in the coming months.
“All or our content will eventually end up in Disney+,” Disney Chief Executive Bob Chapek said in opening remarks, noting that Disney+ had 86.8 million paid subscribers as of Dec. 2. The company expects that figure to balloon to 230 million to 260 million by the end of 2024. Including Hulu and ESPN+, total worldwide direct-to-consumer subscribers should reach 300 million to 350 million by the end of 2024.
“In just a year, we’ve established ourselves as a true leader in the direct-to-consumer business,” Chapek’s predecessor, Bog Iger, said later. Iger pointedly lauded quality — and not quantity — as a key reason for Disney+’s success.
Subscriber growth has blown past original fiscal 2024 projections: In addition to Disney+’s current 86.8 million paid members, Hulu has drawn 38.8 million subscribers, and 11.5 million to ESPN+, according to Rebecca Campbell, who chairs direct-to-consumer and international operations at the company. (Disney had previously estimated 60 million to 90 million Disney+ subscriptions by the end of 2024.)
Still, the cost of producing content will escalate to $8 billion to $9 billion by fiscal 2024, resulting in operating losses the next few years. This, in turn, prompted Disney to announce late Thursday it will raise its monthly subscription fee by $1 each for Disney+ to $7.99 and Disney Bundle with Disney+, Hulu and ESPN+ to $13.99, starting March 26.
Disney also provided updates on the availability of streaming services internationally.
Star, a free-tier service Disney+ for subscribers in Europe, Canada and New Zealand, is slated to roll out Feb. 23. Star Plus, a new streaming service of Disney-owned entertainment that will also carry ESPN content, is coming to Latin America in June 2021.
Separately, Comcast Corp. CMCSA, -1.52% and Disney announced Thursday that they had reached an agreement allowing Comcast to distribute Disney+ and ESPN+ on its Xfinity X1 and Flex platforms, starting in the first quarter of 2021.
During a brief live Q&A session with financial analysts following the video presentation, Chapek underscored the importance of “flexibility” in distributing content during a pandemic. Disney+ plans to release more than 100 titles per year.
Investors have keenly focused on what Disney had to say as studios evolve their approach to movie distribution. COVID-19 has forced them to delay major films and premiere others via streaming services. In September, Disney unveiled “Mulan” on Disney+ as part of a “premium access” experiment, charging subscribers $30 for indefinite access. The latest from Pixar, “Soul,” is scheduled to land on Disney+ on Christmas Day for no additional cost.
Wells Fargo analyst Steven Cahall, who has raised his rating on Disney’s stock to overweight from equal weight, expects subscriber growth to replace earnings per share as the key metric Disney investors care most about.
Like several other media analysts, MoffettNathanson’s Michael Nathanson had anticipated aggressive direct-to-consumer spending to expand streaming subscriptions. What was unclear, he said in a Dec. 7 note, was whether Disney would pursue a more scrappy ESPN+ strategy and the full financial impact of the company’s new Star service.
Read more: Disney can ‘torch’ earnings to build a streaming powerhouse, bullish analyst says
The media titan has careened from one crisis to another over the past year because of the COVID-19 pandemic: Disney has shuttered theme-parks and cruise line, put a pause on production efforts for films and television shows, and announced more than 30,000 layoffs. The company limped to the end of the fiscal year with its first annual loss in more than 40 years — a GAAP net loss of $2.83 billion.
The hemorrhaging didn’t end there. Iger left as CEO and Chapek has overseen deep staffing cuts at Disney’s theme parks and cable sports network ESPN while revamping the executive ranks to accelerate a shift to streaming.
And streaming has been a bright spot for Disney. In its first year, Disney+ zoomed to 73.7 million customers despite bare-fisted competition from the likes of Netflix Inc. NFLX, +1.52%, Apple Inc.’s AAPL, +1.20% AppleTV+, Amazon.com Inc.’s AMZN, -0.09% Prime Video, AT&T Inc.’s T, -2.45% HBO Max and Comcast’s Peacock. Upping the ante, Warner Bros. last week said its full slate of 17 movies in 2021 will debut simultaneously in theaters and on HBO Max for 31 days.
Disney, for example, premiered its long-delayed “Mulan” live-action feature on Disney+ as a pay-per-view option for $30 on Sept. 4.
“Every studio, every entertainment provider who relies on theater-based revenue has to rethink the model,” Ari Lightman, professor digital media and marketing at Carnegie Mellon University’s Heinz College of Information Systems and Public Policy, told MarketWatch. “Relying on the traditional Hollywood way, in hopes of bringing a two-year production like ‘The Avengers’ to theaters and enjoying a billion-dollar blockbuster, that model is over.”
How Disney intertwines its streaming push with the expected return of millions of Americans to theme parks with the availability of a vaccine is likely to be a focus, according to Lightman. “Disney in uniquely positioned to capitalize on bringing its experiential experience” for consumers throughout its businesses, he added.
If nothing else, the pandemic should also underscore the vigilance with which media companies closely guard their content exclusively via their digital platforms. Disney took all its Marvel content off of Netflix, and said it was only for Disney+, according to Lightman.
