Disney will be bundling its Disney Plus and ESPN Plus direct-to-consumer (DTC) streaming services with ad-supported Hulu for $12.99 a month in the U.S. when its Disney Plus service launches Nov. 12, according to Robert Iger, the company’s CEO.
“If you compare us to Netflix, we’re going to have far less products than they do” on Disney Plus when it launches, he said Aug. 6 on an earnings call for Disney’s third quarter (ended June 29). With Disney Plus, “we’re relying on the strength of our brands and the fervor that fans of those brands have for the product that we make under those brand umbrellas,” he said, noting again that the DTC service will include Disney, Pixar, Marvel, Star Wars and National Geographic content.
“We feel that we can focus more on quality than on quantity, but we obviously know we need enough quantity under each brand umbrella to drive subscribers who are primarily interested in those brands,” he told analysts.
Disney Plus will offer “more than 600 hours of premium content from National Geographic at launch, along with almost 300 hours of family entertainment from the Fox Studios library,” he noted earlier on the call.
There will also be a “significant number of movie titles” at launch from the Disney studio – “well over 300 on launch day and over 400 in year one,” he said. Those movies will include eight Star Wars titles at launch, along with 18 Pixar films, 70 Disney animated movies, 240 Disney live action titles, four Marvel titles and eight more Marvel movies in year one, he told analysts. There will also be more than 7,500 episodes of Disney TV shows, he said, adding: “We’re augmenting all of that with a tremendous amount of original live action product.”
As the company prepares for the Disney Plus launch, it’s still working on distribution deals. It already has a few distribution partners, but Iger said: “There are others out there, notably Apple and Amazon and Google, for instance, that we’ve been in discussions with about distribution. You can expect that we will conclude deals with them as distribution partners. We think it’s important for us to achieve scale relatively quickly, and they’ll be an important part of that.” Although there was “nothing to announce specifically” on that front, he said: “We’ve had conversations with all of them. They’re all interested in distributing the product.”
On the technology side, “we continue to look very carefully at the tech platform that we have,” Iger said, noting again that the company is using the same platform for its ESPN Plus DTC streaming service. “We continue to learn,” he conceded, adding: “We think we’re most focused on not how robust it is because we believe we have that already, but we’re most focused on the onboarding experience and making sure that people who sign up as subscribers for the service do so with incredible ease. We know how important it is to create a frictionless experience, and there’s a lot of time being spent on that.”
ESPN Plus had “a little over 2.4 million paid subscribers at the end of the third quarter,” while Hulu had about 28 million paid subscribers, Disney CFO Christine McCarthy disclosed on the call.
Q3 represented the first full quarter for the company since the finalization of its purchase of Twenty-First Century Fox in March, Iger pointed out at the start of the call. “Today, much of our focus is on integrating Fox’s assets and leveraging them, along with our Disney businesses, to move quickly into the direct-to-consumer space,” he said, adding: “Nothing is more important to us than getting this right. We remain confident in our strategy and our ability to successfully execute it, and as Christine noted, we still expect the acquisition to be accretive to [earning per share] before purchase accounting for fiscal 2021. We’re clearly bullish on our future for good reasons.”
But the Fox businesses that Disney purchased had a “slightly negative impact” on Q3 operating income, McCarthy noted on the call. Total operating income fell 5% from a year ago to $3.96 billion, while profit from continuing operations tumbled 51% to $1.44 billion and earnings per share from continuing operations fell to 79 cents from $1.95. But revenue jumped 33% to $20.25 billion.
Studio Entertainment revenue increased 33% to $3.84 billion and segment operating income increased 13% to $792 million thanks to an increase in theatrical distribution results and lower film cost impairments at its legacy operations, Disney said. The improvements were, however, “partially offset” by a loss from the 21CF businesses and weaker TV/subscription video on demand (SVOD) and home entertainment distribution results at its legacy operations, Disney said in its earnings news release.
The increase in theatrical distribution results was driven by the strong performance of the movies Avengers: Endgame, Aladdin, Captain Marvel and Toy Story 4 in the quarter, it said. On the other hand, operating results at the 21CF businesses “reflected a loss from theatrical distribution driven by the performance” of the X-Men film Dark Phoenix, for which the company also recorded a film cost impairment, it said.
Weaker TV/SVOD distribution results were caused by a tough comparison to a year ago, when it had Star Wars: The Last Jedi and Thor: Ragnarok in domestic pay TV, it said. A decline in home entertainment results, meanwhile, was caused by lower unit sales and net effective pricing reflecting the performance of Black Panther in the prior-year quarter compared to Captain Marvel in the current quarter, it said.