Disney+ Stumble Puts Damper on Streaming-Service Birthday Party

Walt Disney Co. trotted out its top creative executives to tout new movies and TV shows coming to the Disney+ streaming service -- a day after shocking investors with lower-than-expected subscriber growth.

Walt Disney Co.
By Christopher Palmeri
November 12, 2021 | 02:00 PM

Bloomberg — Walt Disney Co. trotted out its top creative executives to tout new movies and TV shows coming to the Disney+ streaming service -- a day after shocking investors with lower-than-expected subscriber growth.

Marvel chief Kevin Feige previewed “Hawkeye,” a superhero series starring Jeremy Renner that will be released Nov. 24. Lucasfilm boss Kathleen Kennedy teased an Obi-Wan Kenobi series featuring Ewan McGregor that debuts next year.

“We’re still just getting started,” Kareem Daniel, the head of Disney’s media and entertainment distribution division, said at the event.

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Disney needs to reassure fans and investors as it celebrates the second birthday of Disney+, a service that’s come to dominate the company’s present as well as its future. Management on Nov. 10 reported 2.1 million new subscribers for the $8-a-month service, the slowest growth since launch and well below even Wall Street’s reduced expectations. Disney shares tumbled 7.1%.

The previews are part of a broader promotion Friday that the company is calling Disney+ Day. It includes a one-month subscription for $2, new movies, such as the previously only-in-theaters “Shang-Chi and the Legend of the Ten Rings,” and a Disney+ category on “Jeopardy!” Friday night.

When Disney unveiled the service in November 2019, nobody was more surprised by the reaction than executives at the company’s headquarters in Burbank, California. Disney+ had 10 million customers in its first day and nearly 27 million by the end of the quarter six weeks later.

Then came the pandemic, which trapped millions of families in their homes and led to a further surge in sign-ups. Consumers lapped up programs such as the Star Wars TV spinoff “The Mandalorian” and Marvel’s “WandaVision.” A successful rollout of a new product in India, Disney+ Hotstar, brought another cascade of customers.

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By the first anniversary, Chief Executive Officer Bob Chapek was willing to significantly increase his forecast. At an investor event last December, he said Disney+ subscribers could rise to as many as 260 million globally by 2024, up from a prior projection of as many as 90 million. Investors cheered, sending the stock up 14% the next day.

Rational Exuberance?

The company has been trying to live up to that enthusiasm ever since. Disney shares are down 11% this year, while the S&P 500 is up 24%.

One big problem is that Disney+ has much less content than some of its main rivals, according to Richard Broughton of Ampere Analysis.

The service has fewer than 10,000 hours of movies and TV shows, compared with 35,000 hours on Netflix Inc. and Discovery+, and 20,000 to 30,000 hours on Paramount+, Amazon Prime and Peacock, Broughton estimated. That makes the service heavily dependent on a few high-profile titles, such as those from its Marvel and Star Wars brands.

The pandemic, which shut movie theaters early on, gave Disney+ exclusive rights to marquee titles such as “Soul,” a new Pixar film, and “Luca,” an animated feature. Other big titles, such as “Cruella” and “Black Widow,” debuted online for an additional $30 fee. They kept subscriptions coming and existing customers from canceling, though the strategy has been unpopular with the owners of now-reopened cinemas and many stars.

On a conference call with analysts Nov. 10, Chapek said Disney+ will see much stronger growth in the second half of the just-started fiscal year. That will be driven first by the addition of new markets and then by new programming.

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The company plans to more than double the number of countries where Disney+ is available to 160 by 2023. Disney’s three streaming services, which include Hulu and ESPN+, will have 340-plus programs under development, many for international markets.

Surge of Content

“This represents the beginning of the surge of new content shared last December,” Chapek said.

Subscriber losses at the Disney+ Hotstar business show the challenges Chapek will confront. The service, which was built on the existing Hotstar in India, accounts for 37% of Disney+’s worldwide subscriber count of 118.1 million. Customers fell by about 2 million last quarter after one-year subscriptions tied to Indian Premier League cricket games ended.

Holding on to the cricket rights will be key for Disney to maintain its streaming lead in India, said Vivek Couto, executive director of Media Partners Asia. Other players, including local giant Reliance Group and Amazon.com Inc., may bid, with the price doubling to as much as $5 billion, he said. A decision is expected in coming months.

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Even as Disney builds out sports offerings in Asia and Latin America, Disney+ has been criticized for not offering enough for grown-ups domestically. The company has heavily promoted a bundled offering that includes Hulu and ESPN+ for $14 a month. ESPN+ has 17.1 million subscribers, however, a fraction of the Disney+ total, suggesting the appeal isn’t as great.

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Disney has been adding more documentaries, such as a profile of chef Wolfgang Puck. It’s also putting more music-related programming on Disney+, including the Thanksgiving Day release: “The Beatles: Get Back.”

At the press preview Thursday, Disney unveiled new movies aimed at young adults, such as a new film in the “Predator” horror series.

“We’re not only delivering the big-budget, tentpole-type films at Disney+,” said Sean Bailey, president of the company’s film studio. “We’re delivering midrange family movies, midrange family comedies. We’re delivering inspirational sports films. We’re delivering original musicals.”

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Whether the company can extend beyond its base of families, Marvel and Star Wars fans remains an open question, said Cowen & Co. analyst Doug Creutz. Disney+ needs to grow by almost 10 million subscribers a quarter for the next three years to reach Chapek’s goals, he said.

“It’s a great offering for people who love that content, but it’s still a bit narrow,” Creutz said. “And I think that’s the question that they’re going to have to answer over the next few quarters.”