In Disney’s Push for Streaming Profitability, More Price Hikes Are Imminent

Disney is making its ad tier numbers (and price hikes) part of your world.

During an earnings call on Wednesday evening, CEO Bob Iger shed some light on Disney+’s ad tier, revealing that, as of the end of Q3, the ad-supported plan has added 3.3 million subscribers since launching in December. And according to the CEO, 40% of new Disney+ subscribers are choosing an ad-supported product.

The news comes as Disney looks to boost the profitability of its streaming business, which cut down on losses in the most recent quarter, losing $512 million vs. $1.06 billion in the same period last year. The company also improved direct-to-consumer (DTC) operating income by $1 billion in three quarters, according to Iger.

Notably, domestic Disney+ average monthly revenue per paid subscriber increased from $7.14 to $7.31 due to higher per-subscriber ad profits. And Disney is expecting to increase profitability even more by introducing significant price hikes later in the year.

Though the company just recently increased streaming prices in December, more price hikes are coming on Oct. 12 in an apparent push to get subscribers on the ad-supported plan. Disney+’s ad-free plan will increase from $10.99 to $13.99, Hulu’s ad-free plan will increase from $14.99 to $17.99, and ESPN+ with ads will increase from $9.99 to $10.99.

However, the company is keeping the cost of Disney+ and Hulu standalone ad-supported tiers at $7.99/month each, with the bundle still $9.99/month. Subscribers in the U.S. will also be able to access an ad-free bundled subscription plan featuring Disney+ Premium and Hulu ad-free for $19.99/month on Sept. 6.

Disney+ also announced an ad-supported offering that will be available in select markets across Europe and Canada on Nov. 1. The new ad-supported plans start at £4.99/€5.99 month in EMEA and $7.99/month in Canada.

“We believe in the future of advertising on our streaming platforms, both Disney+ and Hulu, and we’re obviously trying with our pricing strategy to migrate more subs to the advertiser-supported tier,” Iger said during the earnings call, adding, “A substantial amount of new subscribers to Disney+ are signing up for the ad-supported tier, which suggests that pricing is working for us in that regard.”

The company is still shedding subscribers on its path to streaming profitability, as Disney+ finished the quarter with 146.1 million subscribers globally, 7.4% fewer than the 157.8 million it had in the previous quarter, with most of the churn coming from Disney+ Hotstar.

Hulu added 100,000 subscribers to reach 48.3 million, and ESPN+ lost 100,000 subs to fall to 25.2 million. As a way to increase subscriptions and profitability, Disney announced it is exploring ways to address password sharing, with new monetization tactics rolling out in 2024.

A non-linear growth path

Iger made headlines in July for telling CNBC that Disney’s linear TV networks, including ABC and FX, “may not be core” to the company’s business. Since then, speculation about the company selling the linear networks has run rampant; however, the CEO also noted that DTC would be taken into consideration before any future changes are made.

“Clearly, if we are to do anything significant in terms of strategic direction for the linear nets, we have to keep in mind the need for content ultimately fuels our DTC businesses,” Iger said, pointing to Hulu as an example. “So anything that has to be done would be done with an eye toward maintaining a rich flow of content to fuel our growth business, and that will be streaming.”

The CEO went on to note that there would also be complexity in “decoupling the linear nets from ESPN,” but added that it wouldn’t be something the company couldn’t “contend with.”

In terms of bringing ESPN’s flagship channels to the DTC business, Iger said it “is not a matter of if but when.”

Iger gets upfront

Elsewhere on the call, Iger noted that the company is fresh off of closing its upfront season, where streaming was a star.

More than 40% of the total upfront dollars committed this year went toward streaming and digital, with Disney+, ESPN+ and Hulu leading the way, which is similar to the company’s performance last year.

Overall commitments were “in line” with the prior year, according to the company. In 2022, Disney had its strongest upfront to date, receiving $9 billion in commitments.

Iger also made a note of addressing the writers and actors strikes. The CEO recently drew backlash for comments that were dismissive of the union actions, telling CNBC that strikers weren’t “realistic” with their expectations.

During the call, Iger said “nothing is more important” to the company than its relationships with the creative community, adding, “It is my fervent hope that we quickly find solutions to the issues that have kept us apart these past few months. And I am personally committed to working to achieve this result.”

Like Warner Bros. Discovery and Paramount, Disney also noted that it had savings due to lower spend on produced content, which Kevin Lansberry, interim CFO, The Walt Disney Company, partially attributed to the writers and actors strikes.