Streaming services are in trouble. Because most launched around the time of the pandemic, the subscriber growth they achieved skewed expectations. With life returning to normal for most, the need or even the desire to sit around and just watch videos has been greatly diminished.
That was seen most vividly in Netflix's (NFLX 0.72%) results earlier this year when it recorded a loss of 200,000 subscribers -- the first loss in over a decade -- and forecast it would lose another 2.5 million to 4 million subscribers in the second quarter.
Well, it just reported earnings and the streaming giant lost "only" 1 million subscribers. Certainly much better than expected, but also the largest quarterly loss of viewers in the company's history. Netflix stock has lost two-thirds of its value so far this year, plunging from $600 a share to just above $200 a share.
Disney (DIS 0.77%) is hoping to avoid the same problems. While Disney+ was the undisputed star of the pandemic era as subscriber numbers rocketed out of the gate, the streaming service is still growing, albeit at a slower rate.
Some 7.9 million subscribers were added to Disney+ over the first three months of 2022, bringing the total to 87.6 million. But when you add in the international Disney+ Hotstar service, which sports 50.1 million more subscribers, Disney has a total of around 137.7 million Disney+ subscribers.
That's over halfway to its goal of having between 230 million and 260 million subscribers by the end of 2024, which if achieved would make it the biggest streaming service ahead of even Netflix. And it just announced a plan that could go a long way toward helping it achieve that goal.
Disney raises the stakes
Disney, which prices the Disney+ service at $7.99 a month, or about half of Netflix's standard subscription rates, just announced it was raising the price of its ESPN+ streaming service from $6.99 per month to $9.99 per month.
The idea is to lure the sports channel's subscribers over to a bundled package that also includes Disney+ and Hulu, and is priced at just $13.99 a month, still a discount to Netflix, especially its premium package, which goes for $19.99 a month.
By narrowing the gap between the stand-alone service and the bundled deal, Disney is hoping to pad Disney+ subscriber rolls with the 22.3 million people who subscribe only to ESPN+ (it has another 45.6 million people who subscribe just to Hulu, whether with ads or without). Luring in those subscribers would bring the media company closer to meeting its target number that is approaching in less than 18 months.
Supplementing subscriber growth
While average revenue per subscriber is growing for all of its services, Disney+ and ESPN+ are both losing Disney money, leading to nearly $1 billion in operating losses for the direct-to-consumer segment. Higher programming, production, and technology costs are causing the losses to grow, a concern for Hulu, too.
If it raises prices too much to offset these higher expenses, Disney risks cutting into its subscriber growth and slowing its ascent on Netflix, which is why it plans on having an advertising-supported offering for Disney+ by the end of the year.
That's the same lever Netflix is trying to pull. It recently announced it was partnering with Microsoft to serve as its "global advertising technology and sales partner."
Netflix is also abandoning its quantity over quality programming, with Head of Global Film Scott Stuber telling The New York Times, "We're not crazily reducing our spend, but we're reducing volume." The old complaint against cable used to be that you had 500 channels and nothing to watch, and that's how many feel about Netflix's library -- tens of thousands of TV shows and movies, and nothing worth viewing.
The risk to Netflix in introducing ads is far greater, because since its founding in the late 1990s, consumers have always had a commercial-free viewing experience. It's not a given they'll accept ads on Netflix's platform, even for a dramatically lower monthly fee.
And after another debacle of a quarter for Netflix, Disney may yet surpass its rival as the biggest streaming service even before its target deadline arrives.