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The Numbers Confirm It -- Disney Still Needs Theaters

By James Brumley – Dec 2, 2021 at 7:56AM

Key Points

  • Disney's premium video-on-demand revenue in fiscal 2021 was only a fraction of its typical theatrical film business.
  • Consumers most interested in seeing a Disney-made film are likely Disney+ subscribers already, and they can see a new film for free just a few weeks following its theatrical debut.
  • The studio may ease back into its pre-COVID approach that emphasizes the theatrical release of big-budget films and episodic serials for Disney+.

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The entertainment giant did well enough selling pay-per-view movies at the same time they were in theaters during the pandemic, but this approach isn't a long-term winner.

It wasn't one of the numbers revealed within Walt Disney's (DIS -2.33%) fiscal fourth-quarter press release posted in early November, but it was quietly slipped into the 10-K filing submitted to the SEC the day before Thanksgiving. Disney generated a modest $933 million worth of premium streaming business for the fiscal year ended in October. That's only a fraction of the streaming subscription revenue the company collected during the same year, and a similar fraction of its typical box office take before the coronavirus pandemic rattled the entire film industry.

If pay-per-view demand for new theatrical releases wasn't a big draw in the midst of a lingering pandemic that kept most people at home for the better part of the past year, maybe the idea just isn't all that marketable.

By the numbers

As a refresher, Disney released four feature films to Disney+ subscribers in fiscal 2021 at the same time they debuted in theaters: Black Widow, Raya and the Last Dragon, Jungle Cruise, and Cruella. But remember, the company didn't give these releases away. Disney+ subscribers still had to pay an additional fee on top of the streaming service they already paid for.

As it turns out, most consumers didn't take the company up on the offer. Dividing that $933 million by four movies averages out to a modest (by Disney standards) $233 million per flick. However, the $933 million figure also includes several Ultimate Fighting Championship pay-per-view events that further lower each film's premium on-demand revenue.

Movie-goers sitting in a theater.

Image source: Getty Images.

For perspective, Disney generated $12 billion worth of streaming subscription revenue in the latest fiscal year. And in pre-COVID fiscal 2018 and 2019, the company recorded about $10 billion and $11 billion (respectively) of theatrical box office business. Moreover, Box Office Mojo reports Black Widow has generated nearly $400 million worth of worldwide ticket sales, while Raya and the Last Dragon -- the lowest draw of the four films in question -- generated box office sales of $130 million. Cruella and Jungle Cruise contributed $233 million and $219 million worth of worldwide theatrical ticket sales, respectively.

Simply put, selling new movies to at-home viewers isn't a booming business.

Good, but not good enough

That's not to suggest Disney's premium video-on-demand efforts were an abject failure. The premise is still in an experimental stage, and there is no split of ticket sales with a theater when there is no theater involved -- Disney pocketed the bulk of what it collected in premium streaming sales.

The pay-per-view experiment was no smashing success, either. While three of the four movies matched or exceeded their estimated at-home revenue at the box office, consider the environment. Consumers continue to be weary of crowded public places. Indeed, movie theater attendance in the U.S. is still about half of its pre-pandemic levels despite the recent uptick in consumers' willingness to see a new flick on the big screen. In other words, the so-so ticket sales figures for Cruella and Jungle Cruise aren't representative of theaters' full potential. Both films would have likely done much, much better at the box office if not still crimped by COVID-19.

Further stifling the success of premium at-home viewing is the fact Disney+ subscribers knew they'd be able to watch the films for free just a few weeks after their initial release. This of course would have been the case even if these movies weren't available as a pay-per-view title at Disney+ on the same day they debuted in theaters. Many of the 118 million current Disney+ subscribers may be thinking that access to relatively recent theatrical releases is part of the reason they're paying their monthly fee.

So, connect the dots. Premium on-demand films were a reasonable stopgap for the unprecedented situation and arguably have their place in Disney's future mix of its movie business. But the company still needs the big screen for its splashy blockbuster titles.

James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.

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