At the investor day presentation last week, Disney laid out some aggressive growth targets for Disney+, ESPN+, and Hulu. Can the company achieve its direct-to-consumer (DTC) goals?
Disney put on an impressive show for investors last week, focusing on the pivot to direct-to-consumer services. The market was pleased, boosting the company’s stock price by over 10%. Christine McCarthy, Disney’s CFO, laid out the aggressive growth targets the company has for Disney+, ESPN+, and Hulu. Can the company achieve them?
Prospects for Disney+
Subscribers today: 0
Subscriber target: 60M-90M by the end of September 2024
Subscription cost: $6.99 a month or $69.99 a year
Disney expects one-third of subscribers to come from the US and two-thirds from international markets. According to the company, US subscribers should be in the 20M-30M range and International between 40M-60M by September 2024.
Disney is throwing everything at Disney+ to ensure its success. All its big brands will be there and by 2024 the entire movie catalog of those brands will be available. To ensure success, Disney is even willing to break with some of its oldest business practices. For the last several decades, the company has manipulated the availability of classic movies from the Disney vault to maximize disc and VHS tape sales. Now, every movie will be available all the time through Disney+.
The timing of the release, November 12th, also couldn’t be better. There should be millions of people signing up for the service over the Thanksgiving and December holiday seasons. If the company follows through with the original content promised, exclusive availability of top movies, and keeps the subscription price low, the subscriber targets seem very achievable both at home and abroad.
Prospects for ESPN+
Subscribers today: 2M
Subscriber target: 8M-12M by the end of September 2024
Subscription cost: $4.99 a month or $49.99 a year
Current subscribers watch an eclectic mix of sports, including athletics, college football and basketball, and English League Cup soccer. The route to triple or quadruple the number of subscribers will require a lot more sports content.
Disney touted the addition of UFC and Italian Serie A soccer to ESPN+ as two big new wins for the service. The UFC deal is particularly interesting. Starting this month, the only way UFC fans can buy the pay-per-view fights is if they are already subscribers to ESPN+. How many subscribers could this bring in to ESPN+? The biggest UFC PPV events can attract 2+ million buys. In 2018, tournaments regularly attracted average audiences on FS1 of 700,000+.
Disney will need more deals like UFC to achieve the growth it is targeting for ESPN+. However, given the quantity of sports content available, the company’s willingness to pay the required license fees, and the passion of sports audiences, 8M ESPN+ subscribers seems achievable in four years.
Prospects for Hulu
Subscribers today: 23M paid (25M total)
Subscriber target: 40M-60M by the end of September 2024
Subscription cost: $5.99 a month, $11.99 no ads, $44.99 with live TV
Hulu has enjoyed a tremendous growth spurt over the last year. The company increased subscribers to 25M, up almost 50% in 2018. As well, viewers watched 20% more in 2018 than in the previous year. If the service can sustain that growth rate, it should easily meet or exceed the subscriber goals laid out during the investor day.
That said, Hulu is the most vulnerable of the three Disney US DTC businesses. Unlike ESPN+ and Disney+, Disney is not in charge of its destiny when it comes to Hulu. One of the biggest attractions to Hulu is that most recent broadcast TV shows appear on the service soon after they first air. Recent NBC, ABC, and Fox content can all be found, with only CBS content absent.
Unfortunately for Disney, NBCU’s interests are rapidly diverging from its own. Firstly, after the Disney/Fox merger, Comcast, which owns NBCU, was left with a minority 30% stake in Hulu. Disney wields a controlling 60%. Secondly, NBCU will launch its own DTC service in 2020. It will likely want to reserve its premium content for the new service.
These two facts make it look increasingly likely that Comcast will sell its Hulu interest and withdraw NBC content from the platform. Such a move would have a disastrous impact on Hulu’s growth.
Disney says it is also looking to take Hulu to international markets. However, content selection will be limited to ABC and Fox content that hasn’t already been licensed in other countries. The lack of compelling content makes the prospects for a robust International version of Hulu seem dim.
Because of the weak international prospects and the precarious situation with NBC content, the 40M-60M subscriber target looks optimistic at best.
Why it matters
Disney expects all its direct-to-consumer businesses to major players by 2024.
Disney+ looks like it is heading in the right direction to achieve 60M-90M subscribers.
ESPN+ must bring more lucrative sports to the platform to reach 8M-12M.
Hulu is not in charge of its destiny and could fall far short of the forecast 40M-60M.