In spite of the odds being stacked against its marquee theme-parks business, Disney (DIS 2.40%) had a pretty good 2020 -- thanks in no small part to its direct-to-consumer streaming TV segment. As of Dec. 2, Mickey's magical empire boasted 137 million global streaming subscribers, an incredible 17 million more than just two months prior, at the end of Disney's fiscal 2020. With momentum going strong a little over a year after Disney+ stormed the entertainment world, the company is putting the pedal to the metal and is set for a monster 2021 -- for its business, and for its stock.
Disney+ going into Beauty and the Beast mode
It's become clear that Disney sees streaming TV as a central part of its entertainment business, now and in the post-pandemic future. At the company's 2020 investor day in mid-December, CEO Bob Chapek revealed that Disney+ alone had 86.8 million subscribers as of Dec. 2, up from 73.7 million at the beginning of October.
Some 30% of those Disney+ subscribers are in India, where the company debuted its namesake service as Disney+ Hotstar. The big jump in sign-ups can also be attributed to season two of The Mandalorian firing up in November. Based on the massive success of that single show, Disney is ready to roll out more of the goods consumers are craving.
Image source: Getty Images.
Over the next few years, Disney+ will feature 10 new Marvel superhero and Star Wars series apiece, as well as 30 other Disney and Pixar series and feature films. Disney isn't ready to completely trounce the global box office just yet (AT&T's (T +0.86%) Warner Media recently announced it will send every one of its 2021 films to HBO Max simultaneous with a theatrical release), but it left the door open to doing so. Like it did with the live-action version of Mulan, the movie Raya and the Last Dragon will debut simultaneously on Disney+ (via a premium access purchase) and theaters in March 2021.
Disney+ will also be launching in Eastern Europe, South Korea, and Hong Kong in 2021, and the Star general TV entertainment service will also expand outside the U.S. in the next year. In some markets like Europe, Star will launch within Disney+ (and thus increase the monthly price by two Euros a month). In other markets like Latin America, Star will become Star+ and be offered either as a stand-alone service or bundled with Disney+. Speaking of Latin America, Star+ will go live in June and include live sporting events like soccer.
Disney had a number of other significant announcements -- all centered around its fast-growing streaming ambitions. A new agreement to distribute Disney+ on Comcast's (CMCSA 1.29%) Xfinity X1 set-top box will open the door to 20 million more households in the states; Hulu (which had 38.8 million subscribers as of Dec. 2) with no ads for an extra $6 a month will become an option for the Disney streaming bundle family; FX, acquired from Fox, will also make its exclusive home on Hulu to expand on the library of content there; and ESPN+ (11.5 million subscribers) content will also soon be available within the Hulu app.
Put simply, the way households get some entertainment time has rapidly shifted to at-home TV, and Disney looks ready to pull out all the stops to capitalize.
Lots of growth ahead -- and a hopeful return of travel
Of course, all of this new content and expansion is going to cost some coin. The direct-to-consumer segment generated an operating loss of $2.81 billion in 2020 on revenue of $17.0 billion. Losses are expected to peak in 2021 as Disney ramps up spending on all of those new TV projects. However, Disney+ is expected to start operating at a profit by 2024 -- at which time Disney+, Hulu, and ESPN+ are projected to have a total of 300 million to 350 million global subscribers. At that point, Disney said it should be shelling out some $14 billion to $16 billion a year for content.
That's an ambitious schedule, and a hefty bill to boot for TV shows. But Disney has already demonstrated it's an efficient money-making machine. Its broadcasting and cable business remains highly profitable and is paying the bills these days, and creators at the company are unlocking new production efficiencies -- like the 360-degree LED screens The Mandalorian uses as virtual sets, reducing its production costs and speeding up its time to market. Thus, even with vacations mostly sidelined and with streaming services launching in new markets, the entertainment and media leader actually generated positive free cash flow in 2020.
I expect Disney+ and the other members of the TV streaming family to add many millions of more subscribers in 2021, and Disney+'s dollar-a-month service price increase in the U.S. -- 2 euros a month in Europe -- won't hurt, either. If that pairs with a gradual reopening of theme parks, a little box office revenue returning if feature films head for theaters again, and sporting events continuing, next year could be a big year for Disney. Shares trade for 85 times free cash flow even after the stock has risen 22% this year and profits nearly dried up because of the pandemic. But once Disney starts to lap the worst of the COVID-19-induced pain, that metric will improve drastically. Headed into the new year, I'm still a buyer.
