Disney (NYSE:DIS) has high expectations for Disney+, but they might not be high enough.
In case you're among the 21% of Americans who don't know about Disney+, it's the entertainment giant's forthcoming subscription video-on-demand service featuring films from its movie studios, a back catalog of series from its television properties, and several new original series and films exclusive to the service.
Disney+ debuts Nov. 12 and there are increasing indications that it could be a huge launch.
For instance, another result from the UBS Evidence Lab survey that provided the 21% figure suggests that 43% of consumers are likely to subscribe to Disney+. At its investor day in April, the company said it expected between 20 million and 30 million U.S. subscribers by 2024, which represents roughly 18% to 27% of broadband households.
Of course, it's one thing for survey respondents to say they'll subscribe and another for consumers to actually spend their money on something. But the survey results indicate Disney is at least on track with its goals for the Disney+ launch, if not well ahead. And when Disney offered a discount to its D23 fan club members earlier this week for committing to three years of the service, the deal proved so popular it crashed the fan club website.
Here's what a massive Disney+ launch could mean for investors.
On track for 95% awareness
Management laid out plans to reach 95% awareness among Disney+'s target audience by the time of its debut. Considering it's at 79% in UBS' survey among all consumers, and there's still about two-and-a-half months before launch, it should be able to reach that goal.
Disney plans to market specific titles on Disney+ such as its live-action Lady and the Tramp film and the new High School Musical series. Advertising will ramp up as we get closer to the launch date and leverage all of the company's consumer touch points, including pre-roll trailers in theaters, Disney's websites and apps, and its social media presence.
Building awareness is just the first step of Disney's marketing plans. Determining which consumers in its target audience are most receptive to the Disney+ product will enable it to efficiently target those people with performance marketing when it launches.
UBS' survey indicates there's already strong intention to buy among consumers, and Disney's continued awareness marketing should drive that number higher over the next few months. Then, when consumers see an advertisement to actually subscribe, the company should see a massive number of sign-ups.
What millions of subscribers could mean for Disney
First and foremost, millions of subscribers signing up for Disney+ on day one (or week one) could put a massive load on Disney+'s back-end technology. Disney is using BAMTech to support the streaming service. It owns a 75% stake in the company that also powers HBO Now, Hulu's live TV service, and ESPN+.
Over the last few years, BAMTech has dramatically improved its technology to support big events like Wrestlemania, UFC fights, and Game of Thrones season premieres. That said, Disney is investing even more to ensure Disney+'s launch goes off without a hitch. After all, it already faced one hiccup with its servers when it launched its three-year pricing promotion.
The company expects operating expenses, which include its technology expense and significant marketing investment, for Disney+ to total almost $1 billion in its first year. That number may need to ramp up a bit faster than anticipated.
But if Disney+ goes from zero to 10 million or more subscribers in just a few months, it changes the economics of Disney+ considerably. The company doesn't expect the service to break even until 2024 when it reaches 60 million to 90 million global subscribers. Building a subscriber base quickly accelerates that timeline in two ways: It generates more revenue sooner, and it shows greater operating leverage from its marketing and content spend. Additionally, Disney could use success in the U.S. to expand more quickly and reach scale on a global level even faster.
So Disney might have to spend more on technology sooner than anticipated, but the bigger expenses -- content and marketing -- will be more efficient. If even half of the positive respondents in UBS' survey sign up for Disney+ in the first few weeks following its debut, the launch will be absolutely massive and a huge win for investors.