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.

Can an unsuspecting casual viewer know easily that this plan has ads on Hulu and prices will increase to $75/month soon?

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!

Notable notes from Disney’s earning call

Today, Disney released their 2019 Q3 result. Below are a few points that stood out for me

  • Hulu got 28 million paid subscribers while the figure for ESPN+ stood at 2.4 million
  • The integration of 21 Century Fox had negative impact on Disney’s earning, including the subpar performance of movies such as Dark Phoenix
  • Direct-to-Consumer & International segment expected to make $900 million loss in the next quarter, due to investment in the launch of Disney + and support for Hulu, ESPN+
  • Fantastic results for the studio as per Bob Iger

The studio has generated $8 billion in global Box Office in 2019, a new industry record. And we still have five months left in the calendar year with movies like Maleficent: Mistress of Evil, Frozen 2 and Star Wars: The Rise of Skywalker still to come. So far this year, we’ve released 5 of the top 6 movies including four that have generated more than $1 billion in global Box Office. Avengers: Endgame is now the highest grossing film in history with almost $2.8 billion worldwide. Captain Marvel, Aladdin and The Lion King have each surpassed $1 billion. And with more than $960 million in Box Office to date, Toy Story 4 will likely cross that threshold in the coming weeks. And all of these movies will be on Disney+ in the first year of launch.

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  • The leadership behind the studio will manage the film strategy for 21 CF as well
  • Deadpool, Fantastic 4 and X-Men will be part of Marvel Studios
  • Come this November, users can have access to Disney+, Hulu (ads-supported) and ESPN+ as a bundle for $12.99 a month, well below the total sum of all threes, if subscribed separately
  • “Hotstar had more than 300 million average monthly users, served an unprecedented 100 million daily users and delivered a high-quality streaming experience to 25.3 million simultaneous users, which is a new world record”
  • Disney is discussing deals with Apple, Amazon and Google as distribution partners, deals that are expected to close
  • Focus on marketing for Disney+, per Bob Iger

Disney+ marketing is going to start to hit in later this month, later in August. We’re actually going to allow members of D23 to be the first to subscribe. I’m actually going through a comprehensive marketing plan with the team next week. Comprehensive probably is an understatement. It is going to be treated as the most important product that the company has launched in, I don’t know, certainly during my tenure in the job, which is quite a long time. And you will see marketing both in traditional and nontraditional directions basically digital and analog also significant amount of support within the company on basically company platforms. And then of course all of the touch points that the company has, whether it’s people staying in our hotels, people that have our co-branded credit card, people who are members of D23, annual passholders, I could go on and on. But the opportunities are tremendous to market this. And I feel good about some of the creative that I’ve already seen. But you won’t start to see it until later this month.

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Quick Thoughts

I cannot wait to see the battle of the streamers and how well Disney+ will fare. As a student of business, I am fascinated to see the strategies and execution of Disney+ vs Netflix. Netflix has a huge subscriber base as advantage over Disney+, in addition to a household name (ever heard of “Netflix and chill”?) and some great original content. But Disney has its own strengths as well, including marketing expertise, household name, a great content library and additional revenue streams.

I am thrilled to see how fast Disney+ will be able to sign up folks. The emphasis on marketing, the aggressive pricing of the streaming service, the bundle and the focus on exclusive content in spite of loss from licensed deals show that Disney is dead serious. It will be interesting to see how viewers will react and whether there will be some market share loss by Netflix at the hands of Disney+ and other upcoming streamers.

I honestly don’t know how it will go. As a fan and a consumer, I cannot wait to see.

Disclaimer: I own Disney stocks in my portfolio.