It's been less than nine months since Disney (DIS +0.19%) launched Disney+, and it's already reached its five-year subscriber outlook. CEO Bob Chapek announced the streaming service reached 60.5 million subscribers this month. Last April, Disney said it didn't expect to reach its 60 million to 90 million subscriber target until 2024. It didn't take very long to realize that outlook was way too conservative.
The early success is only making Disney more aggressive in pursuing its direct-to-consumer strategy. ""Given the rapid changes in consumer behavior, we believe it is more important than ever that we continue to grow our direct relationship with our customers," Chapek said during the company's third-quarter earnings call.
To that end, he made two big product announcements and also noted plans to expand its content investment in Disney+ to reach as wide an audience as possible.
Image source: Walt Disney
Introducing Premier Access
Chapek's first announcement was the introduction of a new premium video on demand (PVOD) offering called Premier Access. Disney will use the Disney+ platform to sell and distribute PVOD rentals for first-run films starting with the premier of Mulan on September 4.
The new chief executive noted the company doesn't plan to make a habit of distributing its big tentpole films through Premier Access. "Mulan is a one-off," he said. But the release gives Disney an opportunity to "learn from it and see what happens."
Chapek later said, "Our research ... shows that such an offering under a Premier Access offering not only gets us revenue from the original transaction from the PVOD, but also acts as a fairly large stimulus to sign up for Disney+."
Premier Access may be a tool Disney uses to attract new audiences to Disney+, particularly while new productions are shut down. The Mulan release in September notably fits into its content calendar during a month when it's not premiering very much else. The One and Only Ivan will premiere this month, and season 2 of The Mandalorian premiers in October.
A new international streaming service
The second big announcement is that Disney will debut a new streaming service in international markets next year under the Star brand. "The offering will be rooted in content we own from the prolific and critically acclaimed production engines and libraries of ABC Studios, Fox Television, FX, Freeform, 20th Century Studios, and Searchlight," Chapek said.
Disney seems to have scrapped plans to launch Hulu internationally, replacing it with this new Star-branded service. Chapek said the reason is because Hulu doesn't own any international licenses for its content, and it has no brand recognition outside of the United States.
Disney will launch the new service on the same technology platform as Disney+ and incorporate it into its marketing for Disney+. That could mean it plans to bundle the new service with Disney+ similarly to how it offers a bundle for Disney+, Hulu, and ESPN+ in the U.S. It could also bundle the service like Disney+ Hotstar in India.
Management will provide more details on its plans and expectations for the new streaming service at an investor day later this year.
Much more direct-to-consumer expansion to come
There are a few more areas where Disney is investing in direct-to-consumer content and delivery.
First, it's doubling down on Disney+ content. "What we plan to do is invest even more in our content in order to keep that machine cranked and going," Chapek said. He hopes the new content investments will attract a broader audience than the core Disney catalog that brought in the early subscribers.
Second, Disney took some impairment expenses on several international channels in the third quarter. It shutdown 20 channels this year, mostly last quarter. Most of those channels were in the Asia-Pacific, Europe, Middle East, and Africa regions, but CFO Christine McCarthy was keen to point out it doesn't include India. McCarthy said it will move more quickly into direct-to-consumer in those markets.
Overall, McCarthy says the fourth quarter should show a $100 million improvement in operating income for the direct-to-consumer business. Hulu and ESPN+ are moving closer toward profitability while the company grows its investment in Disney+ with more content, as Chapek mentioned.
Disney's aggressive move toward more direct-to-consumer content and options for consumers is paying off handsomely. As the media company increases its investment in the space, it should be able to keep growing subscribers well past its original outlook and create a much more profitable business in the long run than it anticipated just a year ago.
