After nearly a century, Disney (DIS -0.02%) has become synonymous with entertainment. The company's family-friendly theme parks, products, and media entertainment have long been a staple for consumers around the world. Disney has evolved and changed with the times, and nowhere is this more apparent than in its successful foray into the streaming-video market.

Disney+ has gone from a budding start-up to an industry powerhouse in just three short years, boasting more than 164 million subscribers worldwide. Add another 43 million Hulu viewers, and Disney's 207 million subscribers are within striking distance of industry leader Netflix (NFLX 1.46%), with 223 million. Investors expect Disney to overtake Netflix's subscriber count in the coming years.

Yet recent events and pressure from Wall Street could push the company into taking one of the biggest risks in Disney's long and storied history -- a move that could easily backfire, setting the company's progress back by years.

The Disney+ streaming service landing page.

Image source: Disney+.

A match made in heaven?

Disney has operational control of Hulu and is expected to acquire Comcast's remaining 33% stake of the streaming service in about a year. Under the terms of an agreement hammered out in 2019, Disney can close the deal as early as January, 2024. Each streaming platform has a distinct array of popular titles, but combined, the lineup is unrivaled. 

Viewer data seems to support that view. A recent report reveals that so far this year, the combination of Disney+ and Hulu command 30% of the Top 100 programs on U.S. streaming subscription services, according to data compiled by Ampere Analysis. For context, Netflix -- the individual leader -- controls 23%. 

Numerous media reports suggest the company is considering a plan that would merge Disney+ and Hulu, creating a single streaming dynamo. While a combination might seem like a good idea at first glance, the view is myopic and ignores an important consideration.

The marriage deduction

There would no doubt be other benefits to such a marriage. The company would be able to capitalize on the popularity of the two services, boasting a larger library while also providing cost efficiencies by focusing on a smaller lineup of the most popular titles. 

In the midst of the economic downturn, there's been a renewed emphasis on profits, something that has plagued the streaming industry. Disney hasn't been immune, reporting a $1.47 billion operating loss in the direct-to-consumer (DTC) segment during its fiscal fourth quarter. This result brought the segment's losses for the year to more than $4 billion. However, on its recent earnings call, former CEO Bob Chapek said, "We still expect Disney+ to achieve profitability in fiscal 2024."

That could change if Disney merged two top-notch streaming services and charged a higher fee for the combined package than one of the individual components.

The fly in the ointment

Disney recently made two important announcements regarding the future of Disney+. The company will launch an ad-supported tier to bring more price-sensitive customers into the fold, while also increasing the cost of its existing ad-free plan, beginning Dec. 8.  

If Disney were to eventually combine Hulu and Disney+, its total subscriber count would automatically decrease by at least 43 million, the number of Hulu subscribers that would be folded into the larger Disney+. Furthermore, the company would no doubt institute additional price increases based on the greater value and increased programming choices of the new, more robust service -- but some subscribers might not see it that way.

Investors may recall the public outcry in 2011, when Netflix split its streaming service and DVD plans, charging $7.99 per month each or $15.98 for both. Before that split, $9.99 per month covered the cost for both services. At the time, the headlines screamed, "Netflix Raises Prices by 60%," sparking customer outrage. When the fervor subsided, Netflix had lost more than 800,000 subscribers during that fateful quarter -- an important lesson that Disney should take to heart. 

What this means for investors

There seems to be little doubt that Disney will finalize the acquisition, as Hulu's paying customers are significantly more valuable right now than those who subscribe to Disney+. Hulu is only available in the U.S., and its average revenue per user (ARPU) clocks in at twice that of Disney+ in North America. 

In just a short time, Disney has orchestrated a commanding position in the streaming industry, a lead that might be squandered if the company decided to combine its two biggest streaming moneymakers. The company already offers a bundle that includes Disney+ (no ads), Hulu (with ads), and ESPN+ for $13.99 per month ($14.99 beginning Dec. 8). Viewers who want the best of both worlds already have the opportunity to pay up for more programming.

Disney has already raised prices and doesn't want to alienate existing subscribers and risk a mass exodus, just for bragging rights. Things are fine the way they are right now, and it looks like a mistake to combine Hulu with Disney+.