There's little question that streaming video has been the driving force behind Walt Disney's (DIS 0.09%) stock price changes over the past couple of years. At its investor day event in early 2019, the company revealed plans to introduce its Disney+ service, which began an epic run that saw its stock price gain as much as 68% in the two years that followed.
However, slowing subscriber growth over the past couple of quarters has given Disney investors pause, and its once lofty stock price has shed nearly a third of its value since peaking earlier this year.
Disney isn't planning to stand idly by; it recently revealed plans to reinvigorate growth of the company's diamond-in-the-rough.
Spending big
In its recently released annual report, Disney revealed plans to spend roughly $33 billion on produced and licensed content in 2022, up 32% year over year. The company was crystal clear about what was driving the growing investment. "The increase is driven by higher spend to support our DTC [direct-to-consumer] expansion," the report said.
Disney Studios plans to create as many as 50 feature films, destined for both theaters and Disney+. Additionally, the company's general entertainment division plans to produce or license 60 unscripted series, 30 comedy shows, 25 drama series, 15 documentaries, 10 animated shows, and five made-for-TV movies.
One of the more intriguing revelations was that Disney's DTC segment generated significantly higher revenue from TV and subscription video-on-demand (SVOD). Furthermore, the bulk of that increase came from Disney+ Premier Access, which gives subscribers the option to pay a one-time fee of $30 to watch a recent theatrical release before it's available to all members of Disney+.
Disney generated $933 million in this segment, up 70% year over year. The company also noted that "higher Disney+ Premier Access revenues were due to four releases in the current year, Black Widow, Raya, Jungle Cruise, and Cruella, compared to one release in the prior year, Mulan." Given the success of this strategy, it seems highly likely that Disney will go back to the well.
Slowed to a crawl
When Disney+ debuted two years ago, the excitement surrounding the launch led to extraordinary demand and a record-breaking start for the House of Mouse, attracting 10 million subscribers on its first day of availability. Its viewer rolls have since grown to more than 118 million, but in its fiscal fourth quarter (ended Oct. 2, 2021), Disney+ added just 2.1 million new subscribers, the lowest number of quarterly additions since its debut.
It's important to note that at least part of that slowdown can be attributed to the lifting of COVID-19-related restrictions and the summer vacation season, as many families got away for the first time in more than a year. Disney+ also had a dearth of new releases during the most recent quarter, giving potential subscribers little incentive to sign on the digital dotted line.
Additionally, because of pandemic-related production slowdowns, Disney was forced to push out the release dates of all of the movies in the Marvel Cinematic Universe, subsequently delaying their release on Disney+. This includes such tentpole fare as Doctor Strange in the Multiverse of Madness, Thor: Love and Thunder, and Black Panther: Wakanda Forever, each of which will be delayed by several months.
Disney is considering other tactics designed to boost the subscriber growth of Disney+, including expanding its library of content to include more adult-oriented programming to appeal to a more mature demographic, but that strategy brings its own set of concerns.
Feeding the flywheel
There is little doubt that Disney is making the right decision to increase spending to boost its content creation. The beloved characters from the company's various studios, including Pixar, Marvel, Lucasfilm, and Disney animation, are the cornerstone of Disney's empire, fueling sales of everything from plush toys to theme park visits, and from vacation cruises to streaming video subscriptions.
It's important for investors to remember the inevitable ebbs and flows that are a part of the entertainment industry, and Disney+ is no different. Just as parents wouldn't base their children's future prospects on a single report card, shareholders should take a step back and view the performance of Disney+ over the preceding two years.
When viewed through that lens, it's clear that Disney+ and the House of Mouse will be just fine.