The push to grow the…mind-twistingly complex Bundles by Disney

Disney recently announced a slate of price increases for their products: Disney+, ESPN+ and Hulu. Specifically, Disney+ will cost $10.99/month starting this December, up from $7.99. Next month October 2022, Hulu subscribers will pay $7.99 and $14.99 for the ads-supported and premium plans, up from $6.99 and $12.99 respectively. Meanwhile, ESPN+ users already saw the largest increase (percentage wise) as plans that used to cost $6.99 are now worth $9.99.

In addition, there will be a new ads-supported plan for Disney+ in December 2022 which will cost the same as the old premium Disney+ ($7.99). Due to all of the upgrades and additions, Disney also updates their bundles and it’s…unnecessarily complicated. Here is what it looks like

There are a couple of things worth discussing from this recent update from the iconic company. A couple of years ago, Disney set an ambitious goal in subscriber count and profitability for Disney+, as follows:

• Disney+: 230 – 260 million subscribers with Disney+ Hotstar making up 30-40% of the base and profitability by FY2024
• Hulu: 50 – 60 million subscribers by FY2024 and profitability by FY2023
• ESPN+: 20 – 30 million subscribers by FY2024 and profitability by FY2023

Here is where the company was as of the end of the last reported quarter (Q3 FY2022):

• Disney+: 152 million subscribers with Hotstar making up 38%. The service added less than 10 million new subscribers per quarter
• Hulu: 46.2 million subscribers, adding less than 1 million new subscribers every quarter
• ESPN+: 22.8 million subscribers

As the numbers show, ESPN+ is the only service that looks like it’s going to deliver as promised. There is no guarantee that the subscriber count will stay at this level in 2 years, but ESPN+ does earn the benefit of the doubt. Unfortunately for Disney, the other services are likely going to miss the subscriber target at this pace, given the intense competition and churn. And that is why Disney is pushing HARD on bundles at the moment.

First, the above graphic shows how aggressively Disney sells bundles at discount. Second, the emphasis on the Disney Bundle is all over their digital properties. Go to any of the three services’ websites and you will be hit in the face with the call to get the Bundle. The reason behind such aggressiveness in Marketing is that Disney counts every Bundle subscriber as a paid subscriber to each of the service included in the Bundle. In layman’s terms, if you subscribe to a bundle featuring all three services, you are counted as a paid subscriber in all three. That’s why Disney is so invested in pushing their Bundles, because they are running out of time to meet the subscriber goal for Hulu and Disney+.

It is not lost on me that a bundle is a great way to keep churn low. Subscribers that use all three platforms are more inclined to stick around than those that only pay for one. Plus, the prices of the Bundles are very competitive. HBO Without Ads costs $14.99/month while Netflix Premium, the only plan with 4K on Netflix, stands at $19.99/month. Compared to these alternatives, Disney Bundle 4 above looks pretty attractive, especially if you are a family with different interests.

Even though I see the rationale behind their Marketing push of the Bundles, I have a couple of concerns. First, I do expect more ambiguity regarding Disney’s reported numbers. Like, if someone subscribes to a bundle with all three services, how is Disney going to slice and dice the revenue among them and what would be the impact on each service’s Average Revenue Per User and profitability? How much of ARPU and profitability comes from advertising revenue? Would Disney disclose the role of Bundles next year and beyond? We won’t get that much clarity and we will have to trust Disney on whatever they elect to disclose, but if you are an equity analyst, good luck with your forecast!

Second, the number of individual and Bundle plans is really dizzying and unnecessarily complex. Just look at how many plans consumers have to look, analyze and ultimately choose. Choice overload can be a real issue here. I wonder why Disney feels the need to keep Bundle #3 and #6 on the graphic above. To make matters worse, the company currently has an intro offer that artificially lowers the price of some plans, mostly Bundles, in the next three months before the real levels take effect. That’s just too much complexity for consumers and if they complain about being tricked into paying more, I do see why that can be the case.

Personally, I’d love for Disney to display all the individual plans’ prices on their websites so that consumers can do the maths and calculate the savings themselves. Right now, consumers have to go to three separate websites or an Investor Relation page to see how much they would have to pay for Disney+, ESPN+ and Hulu individually. That’s not customer-friendly at all!