The BIG Thing Disney Needs to Be Successful

What do you think is critical to Disney’s future success? New rides at the theme parks? Merchandise? Movies on the big screen? If you guessed those things you may be partially right, but you’re missing out on one HUGE thing…streaming.

From company reorganizations designed to focus on streaming to constant updates on Disney+ subscriber numbers, Disney’s future is, in many ways, riding on its streaming success. And today we’re breaking down why.

Streaming provides Disney with a stream of profit that is flexible

One reason why Disney+ is critical to Disney’s success is its flexible nature. Unlike the theme parks or in-person movie theater experiences, another pandemic, virus-centered event, or emergency that requires individuals to stay inside and/or quarantine may not dramatically affect Disney+ as much (except, perhaps, when it comes to new content production).

For content that is already on the service or is already filmed and basically ready to go, Disney+ can continue to be a source of success.

The timing of its release truly proved its value. During the peak of the COVID-19 pandemic, Disney+ didn’t just survive, it thrived, gaining new viewers, encouraging nostalgic fans to watch their favorite classics, and providing new and exciting content for fans to absorb.

Disney now has a source of income based in entertainment that goes beyond the parks, cruises, shows, and blockbuster movies that require an in-person element. And this source of income has proven that it can survive despite some serious challenges.

Disney+ also gives the Disney Company an “out” or alternative path for entertainment releases should theaters close again or just not do as well as they have in the past. Disney+ allows the Company to be flexible and opt to release hit films on Disney+ instead of spending the money to go to theaters if they think that’s what’s best.

Former Disney CEO Bob Iger even noted that the Disney+ projects in production during the pandemic “kept the company vibrant because there was a beacon of hope.” He also shared that Disney+’s ability to keep the Company afloat “set a profound impact on the perception of the company at Wall Street because the stock has risen dramatically in the process. We plummeted when COVID hit because of the shutdown, and rebounded quickly because we continued to grow Disney+.”

For its flexibility and its ability to produce a profit despite external barriers, Disney+ is critical to Disney’s overall success.

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Disney has MADE it critical to its success

By setting big goals associated with Disney+ in terms of subscriber numbers and profitability, Disney itself has made the streaming service a huge deal.

According to the latest updates, Disney’s long-term goal remains to reach between 230 and 260 million total subscribers by the end of fiscal 2024. Disney also continues to expect that Disney+ will be profitable by 2024. During the Q3 earnings call for Fiscal Year 2022, one Disney executive noted, “As we sit here today, we remain confident that Disney+ will achieve profitability in fiscal 2024 and look forward to several upcoming catalysts, including reaching a steady state of tent pole original content releases, delivery of premium general entertainment and international local originals and the upcoming launch of our ad-supported tier, alongside the new pricing structure.”

During each earnings call, Disney+ is one of the BIG things focused on with many curious to know how close Disney+ has gotten to its subscriber goal. Most recently, as of July 2nd, 2022, Disney+’s total subscriber number was 152.1 million. That number is up 31% when compared to the number of subscribers Disney+ had as of July 3rd, 2021, so things seem to be moving in the right direction.

Another goal Disney has set is that Disney+ will release upwards of 100 new titles per year. That’s a HUGE task they’ve set for themselves, and one that people will be expecting them to deliver on. Their ability to meet or not meet this goal will again play into their overall success in showing investors (and their audience) whether they can truly live up to their own promises.

Disney has also chosen to release a number of big films directly on Disney+, forgoing the traditional movie theaters. In doing so, it has placed a vote of confidence in the streaming service, but it has also made it critical to its success.

With these films going directly to Disney+, Disney is (by design) losing out on ALL of the money that would have been captured by the theaters. In a way, it needs Disney+ to continue to be a success for that design to pay off and for those choices to not be considered big mistakes when it comes to how much money it is making on its films.

Disney has pulled much of its content off of other streaming services, like Netflix, so now its success hinges on Disney+ by its very own design. Despite knowing that it would face lots of competition from other streaming services, Disney decided to go it alone. Now they have to show that it was worth it.

Click here to see what Disney properties were BANNED from streaming in certain countries

Disney has invested a TON of money into content for Disney+

Disney has already and continues to spend an enormous sum on content creation for Disney+. The Hollywood Reporter notes that in the Q2 earnings call and report, Disney revealed that they had spent $2.1 billion on content for Disney+ in that quarter, an increase from the $1.1 billion spent a year before that.

But it’s not as though Disney is spending without thinking about it. In fact, some of its content spending is going down in terms of overall amount versus what was previously expected. Disney CEO Bob Chapek has even indicated that Disney is “very carefully watching our content cost growth.”

Still, it has been projected that Disney will spend anywhere between $14-$16 billion dollars through 2024 on its streaming services, around $8-9 billion of which is expected to be set aside specifically for Disney+.

And despite “carefully watching” content spending, Chapek has indicated that it is a “balancing act” and that “great content” (which takes money to make) “is going to drive our subs, and those subs then in scale will drive our profitability.”

We got a bit of an update during the Q3 earnings call for Fiscal Year 2022 when Disney’s Chief Financial Officer, Christine McCarthy shared that the cash content spend across the entire company would be a little lower than their previous guidance.

Another thing Disney has to consider is that Disney+ is LOSING money right now. Disney reported an operating loss of just over $1 billion related to its streaming services for Q3 of FY 2022. That was UP from a loss of $293 million a year ago. And for the 9-month period ending on July 2nd, 2022, that loss was $2.541 billion.

Disney+’s success is critical to the Company from a purely financial perspective because they have to prove that the content spends/operating loss was worth it. If Disney+ doesn’t “succeed” then investors may consider some of that money spent on content to be a bit of a “waste” so to speak because it could have instead been spent on bigger films or content on cable TV if those prove to be more profitable in the long run.

Click here to see more from Disney’s Q3 earnings report for fiscal year 2022

Disney needs Disney+ to continue to meet consumer needs & expectations

If Disney were to stick exclusively to big in-theater movies, it could miss the boat when it comes to consumer preference. In many ways, consumer behavior has changed. Think about how many movies you watch at home versus even just 5 years ago, or how many meals you order for pick-up compared to just a few years before.

Now more than ever, many people expect to see movies at home or at least expect to have that option. If Disney stays behind on that trend, it could lose out on significant amounts of money and lose out on its fan base by not meeting their needs.

Former Disney CEO, Bob Iger, fully acknowledged this by saying “I think what Covid did actually — it accelerated a change in consumer behavior, which is that pre-Covid, there was growth in these streaming services. What Covid did is, it forced people in, and people still wanted to be entertained, so they figured out how to use…app-based television or app-based entertainment.” Iger continued, “And they got really comfortable with it. They not only like it. They discovered that there’s huge choice. There’s tremendous amount of quality for everybody.”

Iger noted that, in his opinion, he thinks people will still go to the movies, but they may be “much more…discerning about what movies they want to see out of the home, where you’re likely, I think, to say or ask yourself, wait a minute, is this a movie I need to see on the big screen and do all that, or can I wait or not even wait, for that matter, and see it at home?”

Disney+ keeps Disney “relevant.” As the LA Times pointed out, Disney’s current CEO, Bob Chapek, “has made it his mission to grow Disney+, along with the company’s other streamers Hulu and ESPN+, to astronomical heights in order to keep the company relevant to modern viewers who are abandoning the cable bundle.”

Click here to learn about the thousands of subscribers Netflix has lost, and why it might not be as bad as you think

Disney+ has become a focus point for investors

Disney stock has been upgraded in the past based on streaming success, and streaming success can play a big role in overall stock performance.

In 2021, one analyst upgraded Disney’s stock from “neutral” to “buy,” citing success in Disney+ as one of the reasons behind the change. And when the time for earnings calls roll around, Disney+ is often top of mind for investors. Back in May of 2022, the LA Times even discussed how Disney’s report (showing more streaming success) was sure to “attract attention amid growing worries among investors and Hollywood executives that the streaming business may not be as big or lucrative as once thought.”

Based on the reactions we’ve seen lately from investors and analysts, it seems Disney+ is key to Disney’s stock success, even when it has other success in parks and theatrical releases. Basically, those aren’t enough for Disney anymore — Disney+ needs to succeed too.

As The Hollywood Reporter points out, one analyst from Macquarie said, “Investing in Disney shares means believing the streaming transition will succeed and enjoying the cyclical rebound at the parks; Disney is demonstrating its prowess in both areas.” Time and time again, you see analysts emphasizing Disney+ success. Here are just a few snippets of what some have said:

• “Confidence in Disney+ awakens … The company is doing and saying all the right things to make fiscal year 2024 guidance, so it’s a content execution story from here”
• “Disney’s significantly better-than-expected December quarter results showed a major rebound in its global streaming subscriber additions at Disney+ (11.7 million net adds), as well as ESPN+ and Hulu (4.2 million and 1.5 million).”
• “Disney stabilized the short-term narrative by outperforming on its most important metrics, especially Disney+ subs in the face of increased investor skepticism of the streaming model of late”

In other words, Disney+ is a big deal.

But it’s not always good. According to the Wall Street Journal, some are pulling back from media stocks, making streaming a “drag on Disney’s share price,” so it can go both ways. When Disney+ does well, it can mean good news for the stock sometimes. Following the announcement of big Disney+ subscriber growth (and park revenue growth) stock values did go up (though they’ve since taken a little bit of a tumble).

If investors are focused on it, then it becomes all the more critical for Disney’s success. The rise or fall of Disney+ could greatly impact stock values as Disney either meets, exceeds, or falls short of analyst expectations.

But it isn’t all Disney+

While Disney+ may be critical to Disney’s overall success, Disney has other streaming services that are also providing it with sources of income, including ESPN+ and more importantly Hulu, which Disney owns most of.

In the past, Hulu has driven more subscriber growth than Disney+. In July of 2022, the Wall Street Journal reported that new Hulu subscriptions had outpaced those to Disney+ in 18 of the past 24 months. But, sometimes Disney+ does jump ahead. For Q3 of Fiscal Year 2022, Disney+ saw a bigger jump in subscriptions.

And it’s not all streaming. Disney’s Parks, Experiences, and Products division has been doing really well. During Q3 of FY 2022, the revenues for the Disney Parks, Experiences, and Products division increased to $7.4 billion compared to $4.3 billion at the same time last year.

Plus, Disney has been making what some would call “MEGA BUCKS” on merchandise too. That’s the beauty of a Company with diversified forms of income, but it doesn’t mean Disney+ isn’t important at all.

Things may be changing

Things in the streaming world, just as in the regular world, don’t always stay the same. In fact, some investors are warning that a “streaming recession” could be coming, putting Disney+ and other streaming platforms in danger.

Back in July of 2022, CNBC shared that one analyst — Rich Greenfield from LightShed Partners — has indicated that investors “haven’t just given up on Netflix. They’ve given up on the entire streaming sector. They just don’t like this category.” We have seen Netflix lose nearly a million subscribers, causing potential ripple effects of concern for those in the streaming industry.

Some have warned that “Streaming adds alone may not be enough for Disney, especially if second-half growth doesn’t wow investors.” (CNBC)

What now?

All of this might be leaving you wondering…what now? Well, Disney, as we know, is a diversified business. Cruises, streaming, parks, merchandise, books, video games, licensing, and MORE all fall under the Disney name.

There are lots of potential sources of income here, but also lots of potential sources of loss. For now, it seems Disney+ continues to be critical to Disney’s success for many reasons, but things can change.

Just as consumer habits change, so can investors’ focus. It all depends on how the next several months/years roll out. Disney has warned that they expect the acceleration of new subscriptions to only be “modestly above” where they are now in terms of the upcoming quarter, and they expect peak losses for Disney+ in fiscal year 2022.  Will that be the story investors want to see or will it fuel concerns about streaming slowdowns in the industry as a whole?

Plus, with increased competition in the streaming world, ads and price increases on the horizon, and more spending on the way — will Disney be able to make Disney+ a true success? We’ll have to wait and see.

What do you think is critical to Disney’s success? Tell us in the comments.

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