Disney+ celebrated its first birthday last week, on the same day Walt Disney recorded over 73 million subscribers on the platform in its Q4 earnings report.
Nov. 16, 2020
Even though Disney (NYSE: DIS) has experienced unprecedented challenges this year in some of its most profitable divisions, its Q4 earnings still managed to report revenue that topped analysts expectations. The media giant earned $14.7 billion in revenue, compared to $14.2 billion predicted. The magic that was taken when the pandemic closed Disneyland parks forced Disney to conjure up a spell of its own: its virus-proof streaming services — Disney+, Hulu, and ESPN Plus.
How did Disney+ perform in Q3?
Last week, we predicted that Disney+ would be the star in the company’s earnings report, and we were right. The streaming service has enjoyed unprecedented growth from reaching 10 million subscribers in its first 24 hours to boasting over 73.7 million at present, launching the company past the 60 million subscriber target it hoped to reach by 2024. The media and entertainment company’s other streaming platforms have enjoyed successes this quarter too; Hulu reached 36.6 million users, up 27% from a year earlier, and ESPN Plus has 10.3 million subscribers, up 200% from a year earlier.
Last month, Disney announced a major reorganization of its media services to focus on prioritizing streaming. As part of the reconstruction, Disney moved a big Pixar release, ‘Soul’, directly to Disney+ to entice more subscribers. The House of Mouse is also planning a streaming-focused investor day on December 10th to announce more information about its new international streaming service, Star.
Other factors such as sports events returning to TV this quarter also aided Disney’s revenue growth as its advertisement sales were up. However, studios did not generate as much revenue as usual as movie releases were pushed off the 2020 calendar year. Disneyland parks have definitely not been the happiest places on earth this year as lockdowns continue to keep them closed. This has resulted in Parks, Experiences, and Consumer Products being hit hard in Disney’s September-quarter earnings, plunging 61% year-over-year. Overall, revenue was down 23% compared to the same period last year.
The future of Disney as a streaming king
The important question Disney investors are asking is how does the company plan to keep this momentum going? To ensure its continued growth, Disney needs to find new ways to compete against rivals Netflix and Amazon Prime Video. Right now, subscriber cancelations are just under the industry average, but a lot of users signed up for bundles, one-off promotions, or free trials which are set to expire soon.
Production of movies and shows resuming to normal will help Disney+ provide fresh content to viewers, with the much-anticipated ‘WandaVision’ expected to launch in the New Year. The media distribution service could also keep reallocating content that was previously destined for theatrical or network release to streaming-only access. However, it doesn’t look like Disney is ready to abandon theaters for streaming just yet, it has delayed the release of future blockbuster hits Marvel’s ‘Black Widow’ and ‘Eternals’. Disney has said it hopes to release the titles to cinemas in 2021.
Disney faces a more difficult challenge in deciding how to find subscribers who are not fans of its classics like Star Wars, especially as Disney+’s biggest hike in subscribers came from rap-musical ‘Hamilton.’ The audience this modern musical captured represented viewers who are very different from Disney’s typical fans. Therefore, a key tactic for Disney in the future will be finding more Hamilton-type productions to attract untraditional users.
Disney’s success in streaming this year has made Netflix’s lead now look more beatable. Disney plans to invest a lot more in its streaming services, which is why it will not be paying investors a dividend in January. Under the advice of activist investor Dan Loeb, Disney will use the dividend money instead to create new content for Disney+. Investors hope that Disney’s stock will rise if it focuses on its streaming businesses, which currently have far more growth potential than its theme parks and attractions.
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