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Walt Disney Co. will increase the cost of ad-free Disney+ subscriptions this year while adding Hulu content to the Disney+ streaming service and removing some shows from streaming entirely, executives announced Wednesday.
Disney
DIS,
executives have been making changes to their streaming strategy in an attempt to lose less money from offering its content directly to consumers over the internet. The company launched an ad-supported version of Disney+ in the U.S. and other countries late last year, and increased the cost of its ad-free offering at the same time, while increasing costs of other services.
“Pricing changes we’ve already implemented have proven successful, and we plan to set a higher price for our ad-free tier later this year to better reflect the value of our content offerings,” Chief Executive Robert Iger said in a conference call Wednesday related to Disney’s quarterly earnings. “As we look to the future, we will continue optimizing our pricing model to reward loyalty and reduce churn, to increase subscriber revenue for the premium ad-free tier, and drive growth of subscribers who offer the lower-cost ad supported option.”
Full earnings coverage: Disney stock falls as Disney+ subscribers decline amid push to lose less money in streaming
Iger returned as chief executive of Disney late last year, and has been overseeing the evaluation of Disney’s streaming strategy. One of the biggest question marks is Hulu, of which Disney now owns two-thirds, with the option to buy the remaining interest from Comcast Corp.
CMCSA,
as early as January.
Iger, though, has been rethinking the path for Hulu since returning. In an interview with CNBC earlier this year, he intimated that Disney could choose to sell the streaming service instead of buying the remaining interest. In his first big move with the service since returning, Iger said Wednesday that Hulu content would roll into Disney+ in the U.S. later this year.
“As a significant step toward creating a growth business, I’m pleased to announce that we will soon begin offering a one-app experience domestically that incorporates our Hulu content via Disney+,” Iger said in the conference call. “While we will continue to offer Disney+, Hulu and ESPN+ as stand-alone options, this is a logical progression of our [direct-to-consumer] offerings that will provide greater opportunities for advertisers while giving bundle subscribers access to more robust and streamlined content, resulting in greater audience engagement and ultimately leading to a more unified streaming experience.”
Iger later clarified that the two apps will be combined only for those who subscribe to both.
“On the integrated app experience that we announced today, that’s more consumers that have subscribed to both services for now,” he said. “So in other words, it’s taking what we call the dual bundle and putting it together in one experience, which is obviously good for consumers. Why have to close out one app and open another one?”
For more: Disney is undergoing a ‘drastic evolution’ in streaming, and more changes could be afoot
After a wave of new streaming services appeared in recent years to compete with Netflix Inc.
NFLX,
media companies are looking to combine some of their offerings as consumers deal with a web of potential subscriptions. Paramount Global
PARA,
plans to combine its Paramount+ and Showtime streaming services, and Warner Bros. Discovery
WBD,
is planning to combine HBO Max with Discovery+ while renaming the service Max.
When an analyst on Wednesday’s call suggested that Disney’s move revealed that Iger had decided to purchase the rest of Hulu, Iger responded by saying “it’s not really been fully determined what will happen in that regard.”
“Where we are headed is for one experience that would have general entertainment and Disney+ content together for the reasons that I just described,” Iger said. “How that ultimately unfolds is to some extent in the hands of Comcast and in the hands of basically a conversation or a negotiation that we have with them. I don’t want to be in any way predictive in terms of when or how that ends up.”
While adding Hulu content to Disney+, Disney will also remove some content from its streaming services, which will allow the company to save money that would be paid out as residuals for airing the content. Warner Bros. Discovery made similar moves as it looked to cut costs for its HBO Max streaming service last year.
“We will be removing certain content from our streaming platforms, and currently expect to take an impairment charge of approximately $1.5 billion to $1.8 billion,” Chief Financial Officer Christine McCarthy said in the conference call, without elaborating further.
For more: As streaming services cut costs, TV shows — and residuals — vanish
Iger did elaborate on his vision for streaming in his second earnings report since returning to the company, laying out his general thoughts about the path forward for Disney’s streaming portfolio — which also includes ESPN+ and a version of Disney+ in India and other parts of Asia refereed to as Disney+Hotstar.
“First, it’s critical we rationalize the volume of content we’re creating, and what we’re spending to produce our content. Second, our legacy platforms enable us to expand our audiences and often augment our potential streaming success while at the same time, allowing us to amortize our content costs across multiple windows,” he said. “We also need to strike the right balance between our local and global programming, as well as our platform and program marketing. Finally, we must continue calibrating our investments in specific markets.”
Disney shares declined in after-hours trading Wednesday following the release of quarterly results, which showed a sequential decline in Disney+ subscribers. The stock has gained 16.4% so far this year, as the S&P 500 index
SPX,
has gained 7.3%.
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