Disney's Streaming Strategy: Is a Turnaround on the Horizon?

Current performance metrics of Disney's streaming services

Disney's streaming services have shown strong performance, achieving profitability for the first time across combined platforms. Key metrics, including paid subscribers, are being closely monitored to evaluate trends, while strategic content rationalization aims to enhance efficiency and viewer engagement.

"This was a strong quarter for Disney, driven by excellent results in our Entertainment segment both at the box office and in DTC, as we achieved profitability across our combined streaming businesses(1) for the first time and a quarter ahead of our previous guidance." --- (DIS, press release, 2024/08/07)

"Our strong performance in Q2, with adjusted EPS up 30% compared to the prior year, demonstrates we are delivering on our strategic priorities and building for the future, said Robert A. Iger, Chief Executive Officer, The Walt Disney Company." --- (DIS, press release, 2024/06/25)

"As part of this, we decided to rationalize original content on our streaming services, especially internationally, and improve the efficiency of our linear network programming." --- (PARA, sec filing, 2024/Q1)

"We see this as a first step to bringing ESPN to Disney+ viewers, as we ready the launch of our enhanced standalone ESPN streaming service in the fall of 2025." --- (DIS, earning call, 2024/Q2)

"Key metrics In addition to revenue, costs and operating income, management uses the following key metrics to analyze trends and evaluate the overall performance of Disney+ (1) and Hulu (1) , and we believe these metrics are useful to investors in analyzing the business: Paid subscribers (1) at: % Change Better (Worse) (in millions) March 30, 2024 December 30, 2023 April 1, 2023 Mar." --- (DIS, sec filing, 2024/Q2)

Competitive landscape in the streaming industry

The competitive landscape in the streaming industry remains intensely challenging, with major players like Netflix and Apple acknowledging its fierce nature. Companies are focusing on strategic adaptations, such as Amazon's exploration of streaming TV ads, to enhance consumer engagement amidst evolving market dynamics.

"So I'd say the competitive landscape is still really intense. But I would say honestly, Michael, we don't spend too much time obsessing about it because there's frankly not much we can do about what they're doing." --- (NFLX, conference, 2024/05/15)

"Having thoroughly explored actionable opportunities for Paramount over nearly eight months, our Special Committee continues to believe that the transaction we have agreed with Skydance delivers immediate value and the potential for continued participation in value creation in a rapidly evolving industry landscape." --- (PARA, press release, 2024/08/26)

"Tim Cook: Well, certainly, the competitive environment there is the most competitive in the world." --- (AAPL, earning call, 2024/03/23)

"We continue to see many opportunities to grow our offerings, both in areas that are driving growth today like Sponsored Products and in areas that are newer like streaming TV ads." --- (AMZN, event transcript, 2024/05/22)

"So what are you seeing with regards to competitive landscape? And how do you think the meltdown across the media is impacting your ability to grab more consumer engagement and attention?" --- (NFLX, conference, 2024/05/15)

Content strategy and subscriber growth trends

Disney's content strategy focuses on enhancing technology and audience engagement to reduce churn and drive subscriber growth. Meanwhile, Paramount's revenue trends indicate challenges with subscriber declines, emphasizing the need for effective content strategies to improve financial performance and subscriber retention.

"into growing subs, we want to make sure the technology is right. Before we lean into investing in more content, because there are markets in the world where we are underinvested in content." --- (DIS, conference, 2024/05/15)

"Adjusted OIBDA improved by $450 million to $26 million, reflecting the revenue growth, and lower marketing and content costs, including the impacts from actions relating to changes in our content strategy in prior periods (as further described under Consolidated Results of Operations — Programming Charges), partially offset by higher revenue sharing costs." --- (PARA, sec filing, 2024/Q2)

"And it's clear that, in order for us to lower churn rates, which is obviously a major factor in our ability to increase margins and ultimately create growth, You have to have enough engagement by the audience." --- (DIS, conference, 2024/05/15)

"Affiliate and subscription revenues decreased 4% for the six months ended June 30, 2024, reflecting a decrease of 7% from linear subscriber declines, partially offset by an increase of 3% from contractual pricing." --- (PARA, sec filing, 2024/Q2)

"(2) Total may not equal the sum of the column due to rounding. Average Monthly Revenue Per Paid Subscriber - Second Quarter of Fiscal 2024 Comparison to First Quarter of Fiscal 2024 Domestic Disney+ average monthly revenue per paid subscriber decreased from $8.15 to $8.00 due to a higher mix of wholesale subscribers, partially offset by increases in retail pricing." --- (DIS, sec filing, 2024/Q2)

Pricing strategies and subscriber retention effects

Disney's pricing strategies, including recent increases for ESPN+, have positively impacted subscriber revenue. Executives emphasize the importance of delivering value to consumers and leveraging engagement to optimize pricing, suggesting a focus on balancing price adjustments with subscriber retention.

"And much like we've done with price changes in general, we really use signals from our customers, things like plan take rate, conversion rates churn to guide us along an iterative path to get to that right pricing." --- (NFLX, earning call, 2024/Q1)

"$ 6.21   $ 5.54 12 % ESPN+ average monthly revenue per paid subscriber increased from $5.54 to $6.21 due to increases in retail pricing and higher advertising revenue." --- (DIS, sec filing, 2024/Q1)

"I think worth noting that while we're fully anticipating continue to grow subs, the overall business growth now has extra levers and extra drivers like plan optimization, including things like extra members, ads revenue, pricing into more value, which is important." --- (NFLX, earning call, 2024/Q1)

"We've announced pricing and we feel good with all of the value that we're providing to consumers." --- (DIS, earning call, 2024/Q1)

"So I think when it comes to pricing, again, we really think of engagement as the best way to measure our ability to grow pricing." --- (NFLX, conference, 2024/05/15)

Customer feedback and satisfaction with Disney+

Customer feedback on Disney+ shows mixed results. While average monthly revenue per subscriber has decreased, indicating potential dissatisfaction, there is growth in subscription numbers and advertising revenue. The strategy to include sports content aims to enhance customer satisfaction by aligning with audience expectations.

"Domestic Disney+ average monthly revenue per paid subscriber decreased from $8.15 to $8.00 due to a higher mix of wholesale subscribers, partially offset by increases in retail pricing." --- (DIS, press release, 2024/05/07)

"$ (19 )
$ (505 )
96 % The improvement in operating results in the current quarter compared to the prior-year quarter was due to: Subscription revenue growth attributable to higher rates due to increases in retail pricing and subscriber growth at Disney+ Core and, to a lesser extent, Hulu, partially offset by an unfavorable foreign exchange impact An increase in advertising revenue primarily due to higher impressions at Disney+ and Hulu, partially offset by lower rates." --- (DIS, press release, 2024/08/07)

"But it's a start in terms of essentially conditioning the audience or subscribers to Disney+ and Hulu, the fact that sports is going to be there." --- (DIS, earning call, 2024/Q2)

Impact of original content on subscriber acquisition

Original content significantly influences subscriber acquisition and engagement across streaming platforms. Netflix emphasizes member engagement as a key to retention, while Amazon highlights the success of original hits like "Fallout" in driving customer interest. Disney acknowledges that both original and licensed content enhance traction and awareness, further attracting subscribers.

"And when we have signals from our members, this is the amount of acquisition that we've got going on, engagement, what our retention and churn looks like, then we find the right moment to ask our members to pay a bit more to keep that flywheel spinning." --- (NFLX, earning call, 2024/Q2)

"Prime Video continues to produce compelling content with Fallout being our latest big hit on the heels of a very successful Roadhouse movie, with strong customer engagement in our original and partner content." --- (AMZN, earning call, 2024/Q1)

"It definitely does have some value. But as you know, we're also watching as some studios have licensed content to third-party streamers, and that creates more traction, more awareness and in effect it increases not only the value of the content from a financial perspective, but just in terms of traction." --- (DIS, earning call, 2024/Q2)