Walt Disney's (DIS +0.01%) stock surged almost 9% Wednesday as investors overlooked the financial headwinds and focused on the prospects for its streaming services, which have reached more than 100 million global subscribers. However, the biggest streaming-related news in the call may be the company's decision to take Mulan, the highly anticipated live-action remake of the animated feature, straight to home audiences on Disney+ for $29.99 on September. The company also plans to release it in theaters in countries where Disney+ isn't yet available and theaters are open.
The move makes sense, as Mulan's theatrical release had already been delayed multiple times -- but it still came as a surprise, as it's the highest-profile Disney movie to go the direct-to-consumer route. It could prove to be a game changer. Here's why.
Disney's live-action Mulan. Image source: Disney.
A proven profit stream
Momentum against the traditional theatrical windowing process has been building during the pandemic. Comcast's Universal Pictures just forged a deal with AMC Entertainment, the world's largest movie theater operator, to give AMC exclusive rights for 17 days, down from the traditional 90-day period. The deal came after the successful home release of Universal's Trolls World Tour, which raked in $77 million.
Disney may have been taking notes, as Mulan could benefit from similar economics and high demand. Theaters generally take half of box office receipts, but Disney would keep all of the sales of Mulan on Disney+. If just 10 million of the streaming service's 60 million subscribers purchase Mulan, which had a budget of $200 million, that would give Disney a windfall of $300 million in revenue -- the equivalent of $600 million in box office sales -- and the movie will still play in some international theaters, including probably China, the world's biggest movie theater market.
Additionally, demand for new releases is likely high, as most Americans haven't been able to go the cinema since March and new content has been limited on streaming platforms. Though $30 may sound pricey for a family of four, that's still significantly cheaper than a visit to your local multiplex.
A boost for Disney+
Bringing Mulan to Disney+ isn't just a way for Disney to get Disney+ subscribers to pay more, it's also a way to encourage more sign-ups for the streaming service as fans of the movie who have not already joined Disney+ may be enticed to join. In fact, Disney CEO Bob Chapek said on the earnings call that putting Mulan on the streaming service "also acts as a fairly large stimulus to sign up for Disney+." Similarly, the move also boosts Disney+'s brand and its ability to be a direct pipeline for new content.
Chapek said Mulan's release on Disney+ was just a one-off, and it didn't have any plans to repeat that strategy with future releases, but following the success of Trolls World Tour, it wouldn't be a surprise to see Disney parlay Mulan into a similar advantage, tailoring the windowing process to its liking, and releasing movies directly to consumers when it sees it being profitable. If Comcast, the country's biggest cable operator, is betting on direct-to-consumer, the direct channel is likely to be a financial boon for Disney as well.
A chance to experiment
We're in a brave new world for video entertainment, as people are spending more time at home, the global economy is in a recession, and other entertainment and discretionary spending options, like movie theaters, are unavailable. That means it's the perfect time for Disney to experiment with premium video-on-demand. Chapek, explained, "We thought we would give it a try to establish a new window, premier access window, to try to recapture some of that investment that we've got. And the good news is, as I mentioned in my opening comments, is that we're going to have a chance to learn from this and to see whether that makes sense."
Though Chapek said the move was a one-off decision, that was likely a political statement more than anything else, as he doesn't want to offend the theaters or promise anything that Disney doesn't end up delivering. However, if the straight-to-Disney+ release of Mulan is a success, it's hard to see why Disney wouldn't continue with the strategy, at least for the duration of the pandemic. Pleasing its Disney+ subscribers, tapping into unmet demand, elevating its new streaming service, and keeping all sales within its own ecosystem are all winning strategies for the entertainment giant.
With surging subscriber numbers and the addition of premium video-on-demand, the potential of Disney+ and its entire streaming business is only just starting to come into focus.
