Walt Disney (NYSE:DIS) surprised everyone -- even itself -- when it announced 10 million sign-ups for Disney+ within 24 hours of launching the service. It hasn't slowed down much in the two weeks since launching either. The Disney+ app has been downloaded 15.5 million times so far, according to data from Apptopia, with in-app purchases totaling over $5 million.
With all the success of Disney+, investors in competing streaming services like Netflix (NASDAQ:NFLX) may be worried about the kind of impact it'll have. But Apptopia found no negative effect on downloads or user sessions in Netflix or other major streaming competition.
That said, there are two other streaming services that have seen a considerable impact from the launch of Disney+: Hulu and ESPN+. Apptopia found downloads for each increased 50% in the two weeks since the launch of Disney+ launch compared to the prior two weeks. It appears Disney's bundle is working well.
A bundle consumers actually want
Consumers often choose to cut the cord and opt for streaming services because of the freedom to choose which content they want and which they don't want. But because of its broad content library, Disney can offer a bundle of "channels" directly to consumers, and the response has been strong based on the data.
Disney's already built substantial audiences for both Hulu and ESPN+. Hulu has 29 million paid subscribers, and ESPN+ ended last quarter with 3.5 million paid subscribers.
The spike in downloads for Hulu and ESPN+ alongside the Disney+ launch suggests the bundled offering is bringing in new subscribers to both services and not just convincing existing subscribers to sign up for Disney+ as well. With a price of $12.99 per month for all three services -- the same price as Netflix's most popular plan -- it's a compelling value for consumers.
The value of the bundle for Disney
There are several benefits to Disney from bundling all three of its streaming services.
First, a bundled service is more likely to retain subscribers. With a growing number of options for consumers, it's more likely they'll hop from one service to another month after month. The bundle significantly increases switching costs.
Second, Disney benefits greatly from scale. The biggest expenses for Disney's streaming services are content-related. The price of content rights and production costs are the same regardless of whether Disney has 1 million or 100 million subscribers. So, as the bundle increases total subscribers across its various services, Disney will see greater leverage on its fixed costs.
Finally, and perhaps most importantly, selling lots of Disney+ bundles will have a significant impact on Disney's ad sales. Not only will the company have more ad-supported subscribers to sell marketers on, but it'll have more data on those subscribers thanks to linking their viewer profiles across apps.
"[A]d-supported Hulu has very high ARPU [average revenue per user], which is one of the reasons ... it's being bundled with ESPN+ and Disney+ for that $12.99 price," Disney CEO Bob Iger said on the company's fourth-quarter earnings call. The Disney+ bundle could drive that average revenue even higher for Disney.
The early success of Disney+ and the bundled offer from Disney are a sign the company's strategy is paying off quite handsomely. While the competition might not be seeing much impact right now, it could show up in fewer gross additions for some as Disney's bundle offers immense value to its subscribers and provides an incentive for them to stay subscribed. Meanwhile, the bundle could lead Disney to a more profitable direct-to-consumer business, possibly breaking even on its operations sooner than management's 2024 outlook.