Netflix kicked off the current earnings season by kneeing all of Hollywood in the crotch. A subscriber miss, sure, but most troubling was the company’s projection of just 2.5 million new customers in the next quarter. The company’s stock tumbled, and it dragged down with it Disney, ViacomCBS and the other entertainment companies that have bet their futures on the streaming revolution. But then, not two weeks later, Disney surprised Wall Street on Wednesday by reporting the addition of nearly 12 million subscribers to Disney+, sending its stock price flying.
I don’t buy the sky-is-falling theory with Netflix, which now boasts 222 million subscribers worldwide. And, in fact, I think the more relevant question to ask right now is why Disney did so well in adding subscribers during this quarter. To understand what’s really going on, we have to acknowledge what helped Disney reach its current total of 130 million subscribers, or 196 million with Hulu and ESPN+ included. Everyone in the industry is trying to determine the growth trajectory for the next few years, and elucidating Disney’s growth trajectory can act as a guiding light.
Three key areas help understand Disney’s success. First, Disney+’s huge numbers in India, Singapore, and Indonesia come from a combination of exclusive sports offerings via its HotStar unit, hyper in-demand localized content, and a notable lack of reliance on the Disney brand. Second, more than half of new Disney+ subscribers don’t have children, according to the company, which highlights the importance of general entertainment programming on the service. Third, the bundle of Disney+, Hulu, and ESPN+ is working. Or at least it appears to be working, which is just as important for Wall Street right now.
Disney+ HotStar Can’t Be Ignored
Here are some basic facts: Hindi programming made up the largest global market demand share for non-English content in 2021, peaking at just under 40 percent in January 2021, according to Parrot Analytics, where I work. More hours of video are streamed in India than almost anywhere else in the world. At the same time, however—and this is a big however—Indian consumers are more likely to watch ad-supported, cheaper programming, they are mobile-first video viewers, and the cable system isn’t as loathed there as it is in the U.S.
Central to HotStar’s growth are exclusive Indian Premier League cricket matches and original local content. Disney acquired HotStar from Fox, and with it came the IPL rights and a catalog of series and films with a built-in audience. With more Disney content integration, it has reached 46 million subscribers, or fully 35 percent of total Disney+ subs. India is a great market, but customers won’t pay $15 a month to access originals. This is why Netflix recently lowered prices in India, and it’s why HotStar faces challenges.
On one hand, HotStar territories represent the strongest growth across Disney+ over the past year. Subscribers grew by 57 percent year-over-year; that’s great. HotStar, however, only generates $1.03 in revenue per subscriber. That’s up 5 percent from 2021, but compares unfavorably to the $6.68 and $5.80 revenue per subscriber that Disney+ generates domestically and internationally, respectively. HotStar’s subscribers bring in just $47 million a year, while the U.S. and Canada region sees a $287 million in revenue. That’s a 571 percent greater return despite having fewer subscribers.
Herein lies the HotStar problem and promise. The success story in India is adoption, not pricing. Once sign-ups are happening at scale, and churn rates remain relatively low, incremental price increases promise to soon turn that subscriber base into a lot more than $47 million in annual revenue.
But the cricket rights, which expire this year, are a big wild card. Disney C.E.O. Bob Chapek told analysts that he’s bidding aggressively, but so are Amazon, Viacom, and Sony, and the price could reach $5 billion for a five year rights agreement, according to the Wall Street Journal. Chapek said that even without IPL, Disney+ is still on track to hit its 230-260 million global subscriber goal by 2024. All the global streamers are coming for India, so maintaining Disney’s foothold there will be a lot more difficult if Chapek doesn’t re-up those rights. They may be a necessity.
The Disney+ (and Disney) Brand Must Evolve and Expand
Did you know that Pam & Tommy, Hulu’s original series about Pamela Anderson and Tommy Lee’s sex tape, is streaming as a Disney+ original everywhere outside of the U.S.? The film doesn’t exactly evoke the Disney brand, but neither does Peter Jackson’s The Beatles: Get Back—and yet both are key to Disney+ becoming a true Netflix competitor. The “elasticity of Disney and its brand,” as Chapek said on the company’s most recent earnings call, is “much greater than we might have given it credit.”
It doesn’t take much to understand why targeting a more general audience is important, but Chapek also noted that a little more than 50 percent of Disney+ subscribers do not have kids. Think about that.
Chapek has already stocked Disney+ with Black-ish and Grown-ish, two popular ABC titles. What else could we see happen? Netflix’s Marvel shows, which are rated TV-MA, will depart in March, and perhaps they will land at Disney+. Not all the shows that Disney makes are necessarily obvious Disney+ fare, but maybe they should be
Disney+ can’t just be more superheroes. It’s Beatles documentaries, Hamilton, Korean dramas, wildlife and cooking shows. It can be everything that isn’t really Disney, but isn’t offensive if it’s labeled Disney. Remember, former C.E.O. Michael Eisner acquired ABC because he felt Disney needed to expand the brand to survive…and yet he walked away from Marvel because he didn’t think it was Disney enough. Now Marvel practically is the Disney brand.
The content helped Netflix and HBO Max grow, after all, was outside the long-held conception of what those brands typically represented. Netflix was never going to get into reality programming; now it’s one of the company’s most successful genres. HBO filled an older and more male niche; HBO Max expanded into different areas, often skewing younger and female, while maintaining HBO’s identity. Everyone is trying to scale at a pace that makes shareholders happy. That’s hard to do in a silo. Therefore, you build a bigger silo.
Will Streaming Build Back Bundles Better?
Between Disney and Netflix breaking out more details on subscribers, and comments from executives, we’re getting a little more insight into how the bundling of services is working. Last quarter, for instance, Disney raised the price of Hulu + Live TV, but threw in Disney+ and ESPN+. The result: About half of the 4.1 million new Disney+ customers came from the bundle deal. This is either great news for Disney, or a great way to cook the numbers. Are those customers who didn’t want Disney+ actually using it? Does it matter?
This strategy has worked well for Amazon, which gives Prime Video to its 250 million Prime shopping members. Who cares if only a fraction of subscribers are actively engaging with Prime Video on a regular basis?
The thing about Amazon, though, is that everything is through Amazon. The big outlier with Disney is, of course, Hulu. Many insiders have said for years that Disney should roll Hulu into Disney+. And, I expect, some version of that outcome will happen one day, akin to what Disney is doing with Star internationally. For the time being, however, one of the best ways to get people into Disney+ is through a bundle with a product they’re already paying for.
Most people aren’t going to pay for more than a few subscription services. This is why Discovery will likely figure out an offering that combines HBO Max, Discovery+, and CNN+. It’s why some experts recommend that Netflix find another service to partner with to improve its offering. And, crucially, it’s why the cable comparison keeps coming up.
Streaming promised TV fans a hassle-free experience in an internet-first world. But as consolidation happens and new products emerge, bundles make sense to keep that experience hassle-free. For Disney, that currently means bundling the three services. Five years from now? Who knows.
Julia Alexander is a senior strategy analyst at Parrot Analytics, a global analytics firm that measures cross platform demand for content, where she analyzes trends and shifts in streaming entertainment. Prior to joining Parrot Analytics, she was a reporter at The Verge, Polygon, and IGN.