Will Disney Keep Releasing Films On Premier Access?

Walt Disney's (DIS 1.54%) annual report provides some additional details about how its direct-to-consumer streaming services generate revenue. One area that Disney experimented more with over the past year was its Premier Access premium video on demand offering, which allows Disney+ subscribers to watch some films the same day Disney releases them in theaters. 

Disney says subscribers paid $933 million for its on-demand releases last year, which also include UFC pay-per-view (PPV) events on ESPN+. That's a 70% increase from the year before, but investors need more context to determine whether they should be happy with that result.

Image source: Walt Disney.

How much is Premier Access bringing in?

Disney's reported revenue from those on-demand purchases was $933 million last year and $550 million the year before. Disney released four films via Premier Access in fiscal 2021: Raya and the Last Dragon, Cruella, Black Widow, and Jungle Cruise. It released just one film, Mulan, in 2020, which didn't receive a theatrical release in many major markets, including the United States. Disney also says it had 13 UFC events in 2021 versus 11 in 2020.

A significant amount of revenue may actually be coming from UFC pay-per-view buys. In 2020, UFC 246, featuring Conor McGregor and Donald Cerrone, topped 1 million PPV buys on ESPN+. That generated over $65 million in revenue. UFC 249 reportedly drew 700,000 buys on ESPN+, generating over $45 million. ESPN had nine other events that year. 

In 2021, Disney raised the price for UFC PPV events by $5 and sold two extra events to make up for the one it missed in 2020. That included another McGregor fight, which topped 1.2 million buys, generating $84 million in revenue. UFC PPV could've easily topped $300 million in revenue for Disney in 2021 if the other 12 events averaged just 250,000 buys.

So the four Premier Access film releases in 2021 may have only generated an average of around $150 million in additional revenue for Disney. Mulan may have generated more, but demand was skewed, as more consumers were stuck at home amid the pandemic and theaters weren't showing the film.

Is that good enough to keep up releases?

The good thing about Premier Access releases is that Disney gets to keep 100% of the revenue generated from on-demand sales. When it releases a film in theaters, it receives about 60% of domestic box office revenue and around 40% of international ticket sales.

Here's how the four Premier Access films performed in theaters.

Data source: Box Office Mojo.

As you can see, box office revenue is pretty muted across the board compared to the pre-pandemic billion-dollar box office hits Disney was used to. In fact, Disney likely generated more net revenue from Premier Access than box office sales for the four films.

The question is whether Premier Access is the reason for the muted demand. The best way to analyze this is to look at its Marvel releases: Black Widow, Shang-Chi and the Legend of the Ten Rings, and Eternals. The latter two were theater-only releases in September and November.

Black Widow had a stronger opening weekend in the U.S. than did subsequent theater-only Marvel releases. Shang-Chi did, however, go on to outperform Black Widow in theaters, and it's still selling a few million dollars' worth of tickets every weekend. Eternals is set to surpass Black Widow ticket sales as well, just four weeks after its release. 

But Black Widow's additional revenue from Premier Access means it likely generated more net revenue for Disney than either of the other Marvel releases. So, while the release strategy may have muted demand at the box office slightly, Disney likely still saw a net benefit. Furthermore, die-hard fans still showed up in the theaters for opening weekend, generating valuable buzz for the film.

There's an additional wild card for Premier Access: It requires a Disney+ subscription. So, the extent to which it drives new signups or retains existing subscribers is also a net benefit for the media company.

During the company's fourth-quarter earnings call, CEO Bob Chapek said he plans to remain flexible with Disney's film release strategy in 2022. Bigger action films that play well on the big screen, like the Marvel series, are more likely to go exclusively to theaters, while family films may perform better with the hybrid release. "We're going to do what's best for our shareholders ultimately," he said. And nobody has better insights into the performance of each film release than him and his team. But it looks like Premier Access can still provide value in 2022 and beyond.