When it acquired the bulk of Twenty-First Century Fox in a blockbuster deal, Disney (NYSE:DIS) became the biggest new player in streaming. With its already significant stable of major media properties grown even larger, Disney quickly made it known that it would release a new streaming service, Disney+. Then Disney launched a sports-focused streaming service called ESPN+, which has grown quickly since launch. And the Twenty-First Century Fox merger, along with two subsequent deals, gave Disney control of streaming subscription service Hulu, too. When Disney+ launches in November, Disney will have a massive presence in the streaming video space.
It will be a fragmented presence, but Disney has been fairly deft in differentiating its services. And a fragmented approach could allow Disney to scoop up budget consumers with individual subscriptions while still taking on pricier competitors by taking advantage of the Disney streaming family's powerful bundling potential. Earlier this month, the company announced that it intended to do just that.
A three-headed monster
Disney's streaming bundle will include three subscriptions: Disney+, ESPN+, and Hulu's on-demand version, with ads. (Hulu also has an ad-free add-on and a multichannel live TV streaming service called Hulu with Live TV, but Disney has not announced any plans to bundle those.
Disney+'s launch price has been announced as $6.99 per month. Following a price drop earlier this year, Hulu costs $5.99 per month. ESPN+ costs $4.99 per month. Altogether, that would be $17.97 a month, but Disney's announced bundle of all three will cost just $12.99.
It's a powerful combination and an attractive price. It also happens to be a very significant price.
Netflix has had pricing issues
If $12.99 sounds like an awfully familiar price, there's a good reason for that. When Netflix (NASDAQ:NFLX) raised its prices earlier this year, it bumped the monthly price of its most popular plan from $10.99 to $12.99.
That decision has not gone all that well for Netflix. It was in response to this price hike that Hulu dropped the price of its own on-demand service, winning a PR war while quietly pushing through a price increase for Hulu with Live TV. And when Netflix's user growth stumbled this quarter Netflix execs noted that subscriber numbers missed projections by "slightly more" in markets affected by the price increase.
To be clear, Netflix's plans start at $8.99 per month, but that cheapest plan lets users stream on just one screen at a time and does not offer video in HD. Given that HD TVs hit the U.S. market more than 20 years ago, it's not exactly a surprise that the $12.99-per-month plan is more popular.
And now Disney is coming in at that exact same price point.
Trouble for Netflix
Netflix has a lot of reasons to worry about Disney's bundle coming in at this price point. On top of everything else, Disney has 4K video. Disney+ will stream in 4K and Hulu is already available in 4K on some devices. ESPN+ is stuck in regular HD, but that's not a huge surprise given that the service streams live events, where limited buffer times allow less margin for error in transfer speeds. To get 4K streaming on Netflix, users have to keep climbing past the $12.99-per-month standard plan and choose the $15.99-per-month premium plan.
I wrote earlier this year that 4K adoption rates might lead to a de facto price hike for Netflix users as they migrate from the mid-tier standard plan up to the premium plan. But it's easy to imagine consumers passing on that upgrade and instead jumping ship to Disney's bundle the day that they bring home their new 4K TV.
It's hard to deny that Netflix has a pricing problem. Its hefty content library has more titles than Disney+'s will at launch, but a bundle that combines Disney+'s popular media properties (which include Star Wars and Marvel Studios) with Hulu's library and ESPN+'s sports offerings looks like more than a fair match for streaming's elder statesman. And with no daylight between the prices, Netflix will have to figure something out fast if it wants to hold on to the lion's share of the subscription video streaming market.