AD-FREE SUBSCRIPTION AT DISNEY+ TO COST MORE
14.4 million subscribers added to streaming service during the quarter
Disney+ subscribers will start seeing ads on the popular streaming service in December. That is, unless they opt to pay more.
Walt Disney Co. on Wednesday said it would launch tiered versions of the service on Dec. 8. Current subscribers who continue to pay $8 a month for the “basic” tier will get commercials. Meanwhile, subscribers who don’t want ads can upgrade to the “premium” tier, which will be $11 a month, an increase of $3 to the monthly fee.
The pricing change comes as Disney+ continues to grow at a steady clip but is also losing money.
The company’s key streaming service added 14.4 million subscribers during its third fiscal quarter, bringing its global total to 152.1 million. Disney+ had 137.7 million subscribers at the end of its second quarter. Analysts had expected Disney+ to add about 10 million subscribers during the quarter, according to data compiled by financial information service FactSet.
Still, those numbers come at a price. Disney said its direct-to-consumer segment, which includes Disney+, Hulu and ESPN+, lost $1 billion during the quarter, compared to a loss of about $300 million during the same period a year ago. The company spends billions of dollars a year on movies and TV shows that go directly to streaming, in a massive bet on the firm’s future in an increasingly digital world.
Some analysts have raised questions about the strength of the streaming market or whether the costs of competing are sustainable. Netflix’s recent struggles gave Wall Street jitters about the broader media landscape after many big enter
tainment companies, including Disney, bet the house on a direct-to-consumer business model. Netflix last month said it lost 970,000 subscribers in its most recent quarter, marking a consecutive quarterly decline.
Disney has tried to adapt by including a broader swath of content on Disney+, which started as a boutique streaming service featuring mostly familyfriendly shows and movies from Marvel, Pixar, Lucasfilm, Disney Channel and National Geographic. Its catalog expanded with shows such as “black-ish,” the upcoming season of “Dancing With the Stars” and the superhero movies “Logan” and “Deadpool.”
When Disney+ launched in November 2019, it was a mere $7 a month, which was relatively low for a massmarket streaming service. Now that it offers more, Disney is comfortable charging more.
Disney Chief Executive Bob Chapek in June received a three-year contract extension. The board, which
voted unanimously in favor of Chapek’s renewal, cited his leadership through the COVID-19 pandemic, his transformation of the business around streaming and the company’s performance. The vote came as Disney was dealing with a political firestorm in Florida and
a flagging stock price. Disney shares are down about 30 percent so far this year.
Disney is also raising prices for Hulu, which will now cost $1 more for the adsupported version in October ($8, up from $7), while ad-free Hulu’s rates will rise $2 a month to $15. Hulu has
42.2 million subscribers, not counting its version that includes live TV channels. ESPN had already forecast a $3-a-month price increase to $10 a month.
A strong demand for theme park vacations — despite economists’ worries about an inflation-led
downturn in consumer spending — powered an increase in profitability at Disney. Revenue totaled $21.5 billion, a 26 percent increase from a year earlier. Operating profit surged 50 percent, to $3.6 billion.
Economists have long watched Disney’s theme parks as informal barometers of consumer confidence. Historically, when budgets get tight, families cut back on trips to Disney World in Florida and Disneyland in California.
That does not appear to be happening. Disney Parks, Experiences and Products reported quarterly revenue of $7.4 billion, up from $4.3 billion a year earlier, and an operating profit of $2.2 billion, up from $356 million.
A year ago, because of the coronavirus pandemic, most of Disney’s theme parks were operating at reduced capacity and Disney Cruise Line was not operating at all. Since April,
Disney’s domestic parks and cruise ships have been generally operating without coronavirus-related capacity restrictions, the company said. Disney parks have also started to charge for line-shortening privileges, which has opened up a colossal new revenue stream. New rides have also debuted.