Subscriber churn is a major battleground in the streaming wars, and Walt Disney (DIS -0.56%) is currently winning.
The entertainment giant saw the percentage of subscribers canceling both Disney+ and Hulu decline in the back half of 2022 despite pushing through price increases on both streaming services. Meanwhile, cancellations for other streaming services are up nearly universally, according to TiVO's Fourth-Quarter Video Trends Report.
As the competition fights for profitable growth, reducing subscriber cancellations could play an important role. Here's why Disney is well-positioned to keep more of its subscribers.
It's all about the bundle
While Disney did raise prices for its streaming services last year, there was one offer that didn't change: The Disney Bundle.
The Disney Bundle includes Disney+, Hulu, and ESPN+ for $19.99 per month. It's an extremely attractive offer following last year's price hikes for the individual services, which would now cost about $36 per month if purchased separately. And that's exactly what Disney wants.
Management has found greater retention rates for bundled subscribers versus individual Disney+ subscribers. And it added a lot more bundled subscribers in the last three months of 2022. That's evidenced by the drop in average revenue per subscriber for Disney+, despite the price increase in December.
While average revenue per subscriber will drop with the bundled offering, total revenue for Disney's streaming business will climb because customers are opting for the bundle instead of a single service. And the lower churn profile of a bundled subscriber means customer lifetime value is significantly higher.
Industry churn is only going to get worse
A greater percentage of consumers said they're likely to cancel a streaming service in the next six months than those who canceled in the previous six months.
As consumers face more and more options for streaming video entertainment, they're canceling services frequently. Only 37.8% of subscription video on demand (SVOD) users keep a service on average for more than a year, according to TiVO's report. That puts pressure on profits, as media companies have to pour more into marketing to get customers to come back to their services while releasing a steady cadence of attractive titles.
The good news is that consumers are adding new services faster than they're dropping them. That suggests there's still room to increase the overall pie. But many streamers are also facing cord-cutting in other parts of their businesses, including Disney.
Streaming is meant to offset the losses in the more predictable income from cable networks. However, the ability to come and go as a subscriber to various streaming services may make streaming income much less stable or predictable. Disney's efforts to keep churn low should help produce stable revenue growth, as it can rely on fewer gross additions without bleeding out existing subscribers.
Long term, that should result in stronger streaming profits versus many competitors, as it can spend less on marketing and focus on content. The media company is still aiming to reach break-even profitability for Disney+ on a quarterly basis at the end of 2024 before growing profits in 2025 and beyond. That makes Disney one of the best media stocks to own.
