Even with Disney+ impending price hike, it’s ‘way too expensive’, CEO says

Even with Disney+ impending price hike, it’s ‘way too expensive’, CEO says

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Disney+ first launched three years ago at the “pretty absurd” low price of $6.99 per month, CEO Bob Chapek admitted. Now the company is gearing up to raise the prices of the flagship streamer again, but Disney+ still offers a better price-to-value comparison than competitors, he said.

“I think we’re priced way too low for the value we’re offering,” Chapek said, noting that the core Disney+ ad-free service will continue to be priced below that of several competitors. The CEO spoke Wednesday at Goldman Sachs’ Communacopia + Technology Conference 2022.

Amid rising inflation, Disney has announced price increases for Disney+ and Hulu in the fourth quarter of 2022, as well as a December launch for the ad-supported Disney+ tier in the U.S. Disney+ Basic, the name of the ad-supported plan. launched December 8 in the US for $7.99/month. That’s the price of the current ad-free version of Disney+, which at that point will rise to $10.99/month, a 38% increase, and will be known as Disney+ Premium.

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Even if the cost of Disney+ without ads goes up to $10.99 a month, the media conglomerate still has a lot of leeway in terms of price increases, Chapek claimed. “[W]We believe that our churn implications of including the price will be…negligible,” he said.

With the new Disney+ ad tier, “we can really cater to different consumer needs,” Chapek said. Disney+ Basic will be “margin neutral” at worst compared to the ad-free version, he said, so the company is “indifferent” which plan consumers choose. “This only boosts our sales to the [projected Disney+ subscriber] numbers we listed,” Chapek said.

As of July 2, Disney had more than 221 million subscriptions to Disney+, ESPN+ and Hulu. But on average, Disney generates much lower revenue per streaming subscription than rivals like Netflix. Improving the operational profitability of its streaming portfolio is a priority, Chapek said.

Disney is looking forward to a future “hard bundle” that will merge Disney+, ESPN+ and Hulu into one integrated service. To do that, Chapek said, Disney needs full ownership of Hulu; Comcast will retain a 33% stake in the streamer. Comcast has the right to sell its ownership stake in Hulu to Disney as early as January 2024. On July 2, 2022, Disney registered that Comcast’s stake in Hulu was worth $8.6 billion, but Comcast could potentially get billions more than that. “We’d like to get to that endpoint sooner,” but closing a deal to buy out 100% of Hulu is conditional on reaching satisfactory terms with Comcast, Chapek said.

Disney releases a strong earnings report for the June 2022 quarter, with a recovery in theme park revenue and net profit of 14.4 million Disney+ subscribers in the period, to reach 152.1 million as of July 2. The company lowered its global subscriber target for Disney+ to 215 million-245 million worldwide subscribers by the end of fiscal 2024 (down from 230 million-260 million earlier), citing the loss of Indian Premiere League cricket streaming rights as an impediment to the growth of Disney+ Hotstar in India. Then Disney Star scored Indian TV and digital rights to global events for both men and women, hosted by the International Cricket Council (ICC) from 2024-27. “We are still quite optimistic about India,” Chapek said.

Disney has recharged its content pipeline following the COVID production delay. At the D23 fan conference this past weekend, Disney revealed a slew of first looks at upcoming movies and shows, including for “The Little Mermaid” starring Halle Bailey, “Avatar: The Way of Water”, “Indiana Jones 5” and the “Percy Jackson and the Olympians” and Marvel’s “Ironheart” series for Disney+.

“We have a shame of wealth in terms of the abundance of content we have coming from our creative engines,” Chapek boasted. Film and TV productions still adhere to strict COVID safety protocols, which increase costs, but Disney is evaluating how to reduce production costs, according to Chapek.

Chapek addressed Disney’s early plans to roll out a membership program, which brings together Disney+ customer data with businesses across the company, such as the theme parks. “We can now customize and personalize an experience that goes far beyond what we’ve been able to do until now,” he said. Disney+ will “become a platform for engagement” with all of the company’s products and services, “not just a movie service.”

ESPN will continue to be distributed through pay-TV providers for the foreseeable future, Chapek said. However, as he said before, “at some point we’ll see the writing on the wall” in terms of relocating to fork it off as a direct-to-consumer service with the full lineup of sports programming. “We’re not going to rush anything… we’re following the consumer,” he said.

Last month, activist investor Daniel Loeb of hedge fund Third Point urged Disney to divest ESPN and accelerate the acquisition of Comcast’s 33% stake in Hulu. But on Sunday, Loeb backtracked on his call for Disney to divest ESPN, writing in a tweet: “We have a better understanding of @espn’s potential as a standalone company and another vertical for $DIS to build a reach a global audience to generate ads and subscriber revenue.” Third Point owned approximately $1 billion in Disney as of mid-August.

Chapek told Variety in an interview Saturday on D23 that when “word was spreading on the street that Disney might split off ESPN, we had no fewer than 100 questions from people looking to buy it. What does that tell you? That says we have something very good.”

Chapek became CEO of Disney in February 2020, succeeding Bob Iger. Earlier this summer, the Disney board extended Chapek’s contract until July 2025.

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