Disney (DIS -0.28%) is launching Disney+ across Europe on March 24 as the continent is ravaged by the spread of the novel coronavirus. The pandemic has many consumers staying inside, often by government request, and those consumers are streaming lots of video on Netflix (NFLX -0.69%) and other video-on-demand services. In that regard, the European Disney+ launch couldn't come at a better time.
However, actions taken to stem the novel coronavirus pandemic will also negatively affect Disney's production and release schedules for both its theatrical films and Disney+ originals. And if there's one area where Disney+ is lacking, it's in new original content. That could result in higher subscriber churn in the United States over the next few months, especially as AT&T's (T 1.65%) WarnerMedia and Comcast's (CMCSA 0.51%) NBCUniversal launch their own streaming services with new originals.
Keeping subscribers engaged
Disney won a lot of subscribers on the strength of its brands and back-catalog of old and new classics. According to surveys of subscribers, about 46% of sign-ups to the service came just for Disney's movie library. Disney+ subscriber numbers were buoyed by the success of The Mandalorian and Baby Yoda's complete dominance of the internet for the month of December.
Those 46% or so of early sign-ups aren't going anywhere. Disney+ was a known value for them, and they signed up because the price tag fit. There will surely be millions of consumers in Europe for which Disney+ holds a similar appeal. But for Disney+ to maintain its momentum, particularly in the United States, it needs to expand the amount of new content on the service.
Recent theater closures have sped up the release of some feature films on the service. Disney started streaming Frozen II three months ahead of its original schedule. It's releasing the Pixar film Onward on the service on April 3, just four weeks after its theatrical debut. Management will certainly be following consumer response to those releases closely.
However, the slate of upcoming original series coming to the service is thin. The company has 100 shows in development for Disney+, 35 of which are on the release schedule for 2020. But the next big series that might actually draw in subscribers -- The Falcon and the Winter Soldier -- doesn't debut until August.
In the meantime, WarnerMedia will launch HBO Max, and NBCUniversal will launch Peacock in the U.S. Consumers looking for something fresh to watch may cancel Disney+ in favor of a new shiny object. And if that shiny object also has loads of entertainment for kids -- like the entire Sesame Street catalog and exclusive new episodes on HBO Max -- it might win over some core Disney+ subscribers longer term.
The good news for Disney+
The good news for Disney+ is that a lot of its subscribers are likely locked in for a while. Management disclosed that about 20% of the 28 million accounts that signed up in the first three months of its launch came through its one-year promotion with Verizon. 50% of accounts pay Disney directly, and it's likely many of those are paying for a full year, or possibly even three years. Disney will offer even steeper discounts in Europe versus the U.S. for consumers willing to sign up for a full year at a time.
It's likely a majority of sign-ups have paid for Disney+ in one way or another through November of this year. By then, the company will likely have viewers hooked with the rollout of new Marvel series and the second season of The Mandalorian.
The ongoing battle against the spread of coronavirus could slow production, though, and push back several releases. So, Disney+ may face a similar challenge next year if it can't refill the pipeline of originals. That said, it's a challenge all of Disney's competitors in streaming are facing as productions come to a halt for everyone. Netflix announced it's halting production on several series amid the calls for social distancing, and it's paying out $100 million in grants to cast and crew members who are now out of work.
The next couple of quarters will be important for Disney+ to maintain its momentum. The launch in Europe should produce a nice bump in subscribers. Maintaining its subscriber base over the summer and through the year, though, could prove more of a challenge. New competitors from other big media companies with more fresh content and more freedom of movement could reduce demand for Disney+.