“An oil company that can put the oil back in the ground after it is done drilling so it can drill it again”- Charlie Munger on Disney
On November 12, 2019, (it seems like only yesterday), the Disney+ service launched. Last week, only 16 months later, Disney+ hit 100 million users. This explosive growth is due to a few important elements including Disney’s high-quality content, strategic partnerships, strong operational execution, and international strategy.
Disney+ success started on its first day, on launch day they acquired 10 million subscribers. Some expected a slow start, but this was a rocket launch from day one. They continued to grow to finish the year with over 73 million subscribers. Some wondered about churn from initial offer deals with Verizon and the like, but Disney+ continues to thrive. Disney+’s 100 million subscribers from a standing start astonished even Disney, the company initially informed investors that they expected between 60 to 90 million subscribers by the end of 2024.
For some industry context, Netflix started its streaming business in 2007, it took them 10 years to hit 100 million subscribers. Disney hit 100 million in just over a year and is halfway to the overall subscriber base that it took Netflix 14 years to build. This puts Disney and Netflix firmly at the top of the table, with everyone else (Amazon, Viacom/Paramount+, Comcast/Peacock, AT&T/HBOMax, and others) all playing for the number three spot.
There are multiple, unique drivers in Disney+’s success. First, their massive stockpile of content spanning age groups, genres, and franchises. In addition, the pandemic left people all around the world looking for new movies, music, and TV shows to watch, Disney+ released recordings of the hit musical Hamilton, a Beyonce visual album, and more unique content to further diversify their content portfolio.
One of the most important reasons for Disney+’s early success is their pricing strategy. Even with the recent one-dollar price increase to $7.99/month, Disney is still drastically undercutting its competitors, for example, Netflix’s $13.99 monthly charge. This gives Disney room to grow price over time and spread those gains over very large subscriber bases. The recent price increase of one dollar should gain Disney hundreds of millions in revenue per year. Disney chose their partnerships well. They gave a year-long free trial to all Verizon users. This was based on the assumption that if people experienced Disney’s quality content in a convenient mobile format then they would champion the brand. This worked far better than even Disney could have expected.
For international streaming, Disney launched Star as a standalone product or in combination with Disney+. Disney+ Star offers twice as much content as the standard Disney+ and offers a combination of not only Disney’s content but also local products and sports. In February, Star has already been launched in Western Europe, Australia, Canada, and Singapore with Hong Kong, Japan, Taiwan, South Korea, and Latin America joining later this year.
As Disney+ has become more successful, Disney leveraged Hulu to target a different kind of audience. For its flagship Disney+ service, Disney will preserve the family-friendly nature of its content. And so it will use other brands to target wider audiences. For those who want both services, Disney offers Hulu, Disney+, and ESPN+ for $12.99 per month. For international streaming, the brand will be Star, not Hulu. These different offerings give them a way to augment their “golden child” Disney+ on domestic and international markets. Eventually, Hulu may be replaced with Star or simply stay as a domestic brand given that it does not have an international presence.
Disney+ hit the difficult 100 million milestone in such a short amount of time, now the question is - have they reached their capacity or where will the next 100 million subscribers come from? The next 100 million subscribers will come from international markets, which makes the Star brand a very important factor to watch. India is a crucial market for Disney because it is one of the largest potential markets for US streaming services. Already Disney has captured just over 18 million subscribers in India, and there is a lot more growth potential to come. To read more about India’s importance in the streaming wars go here.
Disney has utilized its large content library and strategic international acquisitions to grown its subscriber base very quickly. Leading to more direct consumer relationships than the company has had in its storied past. As we look forward, it will be interesting to see how profitable and sustainable Disney+ and its international counterparts will be. What role will streaming play in the sprawling Disney portfolio and how will they choose to monetize these direct relationships built through streaming?
As to the next steps beyond 100 million subscribers, questions we should be asking include - what is their churn rate? Do they have strong relationships with current or potential bundlers (Apple, Amazon, etc.)? How much are they paying for new content either in-house or external? How much and where is Disney streaming growing or receding? These are questions many thought Disney would begin to answer in 2024, but with the exceptional launch, the work to answer them begins now.