Bob Chapek: Disney+ Eyeing Subscriber Headwinds in Q4

Disney+ has been an industry success since launching in November 2019, driving exponential subscriber growth past 103 million — surpassing SVOD sub growth market leader Netflix in the process. That ride is about to get bumpy in the fourth quarter (October-December), according to CEO Bob Chapek.

Speaking Sept. 21 on the virtual Goldman Sachs Communacopia Conference, Chapek said the explosive Disney+ subscriber growth has been driven in large part by Disney’s acquisition of the Hotstar streaming platform through its $71.3 billion 20th Century Fox purchase. A large segment of Hotstar subs follow professional cricket, specifically the Indian Premier League, which the platform has exclusive streaming rights to.

Disney also launched general content platform Star+ in Latin America, in addition to the Disney+ Hotstar rebranding in India. The Star+ rollout has seen its challenges with the platform having to adapt to 18 different markets, eight separate pay-TV distribution agreements in seven different currencies, across six different platforms, according to Chapek.

“That was quite ambitious,” he said. “It was a little slow going in the beginning as our partners mobilized. But at the same, our trajectory is going to change very quickly, just like it did with Disney+.”

Separately, Chapek said this week’s re-launch of the the IPL underscores a shift in the league’s schedule and coincides with the annual expiration of many Disney+ subscriptions. Unlike in the U.S. and other markets, annual streaming subscriptions do not automatically renew. As a result, Disney has to re-engage millions of its streaming subs.

“Every time you lose that [sub], you have to get that [sub] back,” he said, adding that with the reboot of the IPL, there will lots of incentive among subs to renew.

“But you have to take a step back before you can take a step forward in terms of those [Indian] renewals,” Chapek said. “It’s a claw-back if you will.”

The executive used the subscriber situation in India to underscore what he contends is a significant “non-alignment” with Wall Street thinking on Disney+ SVOD subscriber growth. Chapek said growth is not linear quarter-to-quarter. He said Disney’s previous growth prediction of 230 million to 260 million subs led many analysts to project a required quarterly sub growth trajectory. A thinking, Chapek believes doesn’t reflect global reality.

“These [subscriber] numbers tend to be a lot noisier,” he said. “They are not a straight line relationship quarter-to-quarter.”

As a result, Chapek warned that Q4 sub growth would increase by “low single-digit” compared to Q3. He added that the core sub market growth would increase both domestically and internationally.

“But we hit some headwinds,” he said, alluding to ongoing production shutdowns due to the pandemic. “This is a kink in the supply chain of new content coming onto the service. But this is very short-term.”

Indeed, Disney currently has 61 movies in production, in addition to 17 episodic shows earmarked for streaming, according to Chapek.

“We’re only in the first year-and-a-half of this wonderful experience of our direct-to-consumer business,” Chapek said. “We’re in inning one, and we have a lot to learn, but we’re really pleased how it’s gone [thus far].”

Disney CEO Bob Chapek Defends Hybrid Theatrical/Streaming Release Strategy

Facing litigation and scrutiny over the hybrid theatrical and Disney+ Premier Access release strategy around Marvel Studios’ Black Widow and other movies, Disney CEO Bob Chapek reiterated that the media giant would continue pursuing distribution channels dependent upon each movie’s market potential, among other factors.

Speaking Aug. 12 on the fiscal call, Chapek said the alternative release strategy — whose planning he said involved analyzing global market conditions and consumer behavior, and consulting with creative personnel, senior management, and even executive chairman Bob Iger — was prompted by the unprecedented impact of the pandemic on the traditional theatrical window.

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Bob Chapek

“We needed to find alternatives to provide movies to consumers while theaters were closed,” Chapek said, adding that once theaters began to re-open, moviegoers still remained home, reluctant to return without a vaccination and other assurances.

“So we adopted a three-pronged strategy that consisted of theatrical releases direct to Disney+, and a hybrid of theatrical and Premier Access premium VOD as we did with Cruella, Jungle Cruise and Black Widow — the top performing film for the domestic box office since the start of the pandemic,” Chapek said, adding that distribution of individual films is based on reaching the widest-possible audience.

The result has resulted in strong PVOD revenue from Black Widow and Jungle Cruise, in addition to topping opening box office ticket sales. It also produced a breach of contract lawsuit filed by Black widow headliner Scarlett Johansson, who claims Disney pushed the movie on Premier Access to undercut her theatrical take.

Disney denies the allegations, publicly announcing Johansson has already been compensated $20 million for Black Widow. The movie has generated $175.3 million at the domestic box office; $360.7 million worldwide.

Exhibitor trade group the National Association of Theatre Owners contends Disney has undercut its movies’ box office potential, including downstream home entertainment retail and rental revenue potential with Premier Access.

It claims Disney hasn’t found a new revenue stream with PVOD, but instead, has sabotaged existing ones.

“The many questions raised by Disney’s limited release of streaming data  opening weekend are being rapidly answered by Black Widow’s disappointing and anomalous performance,” NATO wrote in late July. “The most important answer is that simultaneous release is a pandemic-era  artifact that should be left to history with the pandemic itself.”

Chapek says Disney remains a strong believer in theatrical distribution.

“We will always do what we believe is in the best interest of the film and the best interests of our constituents,” he said.

Indeed, Chapek said the upcoming Sept. 3 release of Marvel Studios’ Shang-Chi and the Legend of the Ten Rings would stick with an exclusive theatrical release for a 45-day period, followed by distribution on Disney+.

“On Shang-Chi, we think it’s going to be an interesting experiment,” Chapek said. “The prospect of taking a Marvel title after just 45 days [in theaters] would be an interesting data point.”

Disney CEO Bob Chapek Cites Home Entertainment Success as Key to Getting Closer to Consumers

For Bob Chapek, what’s old is new again.

Before Chapek become CEO of The Walt Disney Co., he was president of Walt Disney Home Entertainment and driver of a successful packaged-media marketing program that created demand for select Disney classic titles by keeping them temporarily unavailable via the “Disney Vault.”

Flash-forward to the present and Chapek has been focused in part on expediting Disney’s direct-to-consumer retail and streaming access. Speaking June 14 on the virtual Credit Suisse 23rd Annual Communications Conference, Chapek said the DTC business strategy — similarly to home video and transactional VOD in the past — is about getting closer to the consumer.

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Disney’s DTC unit includes streaming video services Disney+; Disney + Hotstar; ESPN+; Hulu; and Star+. The segment had more than 103 million combined subscribers, and posted revenue of $3.5 billion in the fiscal first quarter, up 73% from the previous-year period.

“It’s about having a granular understanding of what the consumption patterns are, and then speaking to the consumers in a way that’s going to be relevant to the content that they want specifically for themselves,” Chapek said. “And by doing so, we’ll drive engagement and consumption.”

Disney+ has taken baby steps into premium VOD, dubbed “Premier Access,” enabling Disney+ subscribers early access to select movies priced at $29.99 purchase-only price. Subsequent retail channels include transactional VOD, electronic sellthrough, DVD and Blu-ray Disc.

“In terms of the relationship that we have with our distribution partners, the key is having a strong symbiotic relationship, and that’s what we’ve got, as they really want Disney content and we bring that value to their platform,” Chapek said.

“So as long as we have a symbiotic relationship, where we bring something they need, we get something that we need. It’s a healthy relationship. And with the wide variety of content that we have in our machine, I think we’ll continue to have that very positive, very productive, very symbiotic relationship.”

When asked whether Disney might separate select Disney brands such as Marvel and Star Wars into standalone streaming platforms, Chapek said the aggregated business model, including combining Disney+, ESPN+ and Hulu into a specially-priced combo offering, is working.

“There is sort of a large overlap between people that like Marvel versus people that like Star Wars and people that like Disney,” he said.

“We won’t say no to anything in the future, but right now we’re really happy with our more highly aggregated model that we have, both from a cost standpoint and from a market opportunity standpoint. But again, who knows it could evolve over time as we learn more and more in different regions across the world.”

Bob Chapek: Pandemic Brought Flexibility to Disney Content Distribution

As Hollywood puts the pandemic in the rear-view mirror, Disney, like other studios, has revisited its distribution strategy of original movies and TV shows. Speaking May 24 on the virtual JPMorgan 49th Annual Global Technology, Media and Communications Conference, CEO Bob Chapek said the pandemic put renewed focus on how consumers want to access content, rather than traditional norms revolving around the 90-day theatrical window.

“One of the things we learned is flexibility is good because there’s two dynamics going on: One is people’s willingness to return to theaters and theaters’ ability to return in a meaningful way,” Chapek said. “And then the second is the change in consumer behavior that’s happening naturally, with COVID probably acting as a bit of a catalyst, but was going to happen anyway.”

Disney is returning to the movie theater in late summer with exclusive (and curtailed) 45-day windows for 20th Century Studios’ Free Guy and Marvel Studios’ Shang-Chi and the Legend of the Ten Rings. Free Guy launches on Aug. 13 and Shang-Chi on Sept. 3. The films mark Disney’s first exclusive theatrical releases since the Aug. 28 release of The New Mutants.

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Other theatrical titles Cruella (May 28), Black Widow (July 9) and Jungle Cruise (July 30) will debut in cineplexes and on $29.99 Premier Access via Disney+ simultaneously.

“We’re trying to offer consumers more choice as they gain confidence in how they want to go ahead and return to theaters,” Chapek said, adding that consumer return to the box office has been stronger in select international markets.

“We’re seeing some hesitancy to return [to movie theaters] in a way that would look anything like normal back in 2019,” he said. “And as such, during this sort of interim period, it’s really nice to be able to give consumers some flexibility.”

Marvel Studios’ Black Widow

When asked why a theatrical tentpole title like Black Widow would get concurrent purchase access on Disney+, Chapek said the Marvel Universe movie, starring Scarlett Johansson, had been delayed twice — and a third delay was not an option.

“At the same time, we always knew that there was a risk that exhibition wasn’t going to be fully developed or that consumers wouldn’t want to go back and sit in the theater,” he said. “We realized we had to sort of ‘prime the pump’ and give theatrical exhibition a chance, but we couldn’t put all our eggs in the exhibition basket, because we knew that in the weeks leading up to the decision, the domestic market was not coming back and is still fairly weak. We’re really confident we made the right call there.”

Pixar Animation’s Luca

The June 18 release of Pixar Animation’s Luca direct to Disney+ without a $29.99 purchase fee, and bypassing theatrical surprised some observers. Chapek said the decision revolved around keeping Disney’s evolving distribution channels stocked.

“We’ve increased our investment in creative content to ensure that all channels have a full complement of offerings to sort of keep everybody happy,” he said. “We want to make sure, given the importance of Disney+ in the marketplace and our shareholders, that we keep feeding that machine.”

Indeed, Disney’s Christmas Day release of Pixar’s Soul was topped only by Warner’s same-day release of Wonder Woman 1984 on HBO Max.

“We believe that Luca will get a lot of eyeballs,” Chapek said.

Disney+ Tops 103.6 Million Subscribers Through April 3 — Lower Than Wall Street Projections

The Walt Disney Co. May 13 reported that its branded SVOD platform Disney+ topped 103.6 million subscribers through April 3. That compared with 33.5 million subs through the previous-year second quarter, ended March 28, 2020. Disney+ topped 100 million subs through March 9. Wall Street had expected Disney+ to reach 110 million.

ESPN+ grew subscriptions 75% to 13.8 million from 7.9 million, while Hulu upped subs 31% to 37.8 million from 28.8 million last year. Hulu with Live TV saw its industry-leading online TV subs increase 15% to 3.8 million from 3.3 million.

Direct-to-consumer revenues for the quarter increased 59% to $4 billion and operating loss decreased from $800 million to $300 million. The decrease in operating loss was due to improved results at Hulu and to a lesser extent at ESPN+.

The increase at Hulu was due to subscription revenue growth and higher advertising revenue, partially offset by an increase in programming and production costs driven by higher subscriber-based fees for programming the live television service. Subscription revenue growth was due to an increase in subscribers and, to a lesser extent, higher rates driven by an increase in retail pricing for the Hulu Live TV+ SVOD service in December 2020. Higher advertising revenue was due to increased impressions.

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The improvement at ESPN+ was driven by subscriber growth and higher income from Ultimate Fighting Championship pay-per-view events.

Results at Disney+ were comparable to the prior-year quarter as an increase in subscribers was largely offset by higher programming and production, marketing and technology costs. The increase in subscribers and costs reflected the ongoing expansion of Disney+ worldwide.

News Analysis: Subs, Hype and Debt: Another Week in the Pursuit of Netflix-Like Relevance

NEWS ANALYSIS — Executives at media giants Disney, Comcast and AT&T took to virtual online events this week (and prior) to brag and cajole Wall Street investors regarding efforts to narrow the divide between their respective over-the-top video platforms and market behemoth Netflix.

The tape measures came out early with Disney CEO Bob Chapek announcing that the company’s branded SVOD platform, Disney+, had just surpassed 100 million subscribers, less than a month after reaching 95 million — but still less than 50% of Netflix’s 203 million subs at the end of 2020.

“The enormous success of Disney+ has inspired us to be even more ambitious,” Chapek said, adding the service plans to release 100-plus new titles per year across its Disney Pixar Animation, Disney Live Action, Marvel, Star Wars and National Geographic brands.

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By comparison, Netflix released more than three times that (371 movies and TV shows) in 2019, while reportedly launching 40 to 50 TV shows (some returning) and movies monthly in 2020. The SVOD pioneer earlier this month said it would alone bow 41 Indian movies and shows this year — a shot across the bow in response to the fact that 33% of Disney+ subs come from India.

Meanwhile, WarnerMedia CEO Jason Kilar raised the bar on the company’s HBO Max service, telling investors he expects between 120 million and 150 million combined HBO Max/HBO subscribers by 2025 — up from the 75 million to 90 million projected in October 2019. The combined platforms ended 2020 with more than 41 million subs.

“We exceeded that milestone more than two years ahead of plan,” Kilar said. “The launch of Max has not only covered the decline in linear-TV subscribers, it has actually driven material growth.”

The co-founder/former CEO of Hulu told investors that based on third-party data, in-house number crunching, and a market-leading $14.99 monthly subscription fee, Max was the No. 2 revenue-generating SVOD in the United States — after Netflix.

When multiplying subs by subscription fees, HBO/HBO Max generated about $7.4 billion in revenue in 2020, compared with about $4.6 billion for Disney+. By comparison, Netflix generated $25 billion in revenue last year and added a record 37 million subs. Max plans to launch a lower priced, ad-supported option in June.

“The economics of Max’s growth are compelling,” Kilar said.

After a measured launch last summer, NBCUniversal’s Peacock streaming service ended 2020 with 33 million app sign-ups or people who created accounts, but weren’t necessarily paying for the SVOD/AVOD hybrid service. Comcast Corp. CEO Brian Roberts claimed Peacock was the second-fastest growing brand (after Zoom) during the pandemic.

But at what cost? The company quietly disclosed in a regulatory filing that Peacock lost $914 million in 2020, while generating $118 million in revenue. Neither HBO Max nor Disney+ are yet profitable. Much of the Peacock fiscal loss is due to opportunity costs associated with NBCUniversal diverting programming to Peacock rather than third-party content licensees — a fiscal conundrum not lost upon Roberts.

“During this year, one of my goals is to step back and comeback with, ‘Okay, we had this start [with Peacock], what are we going to do about it?’” he said.

Analyst Rich Greenfield with Lightshed Partners has a possible suggestion: consolidation. Greenfield contends NBCUniversal and WarnerMedia should merge OTT video operations rather than going it alone to create greater competitive scale in a saturated marketplace.

“We believe it is time for both AT&T and Comcast to abandon the fool’s gold of vertical integration of content and distribution and merge NBCUniversal with WarnerMedia,” Greenfield wrote in a blog post last November. “Abandoning grandiose plans and empire building is a tough psychological hump to overcome. However, it would be a wildly accretive outcome for investors.”

Bob Chapek: Disney+ Tops 100 Million Subscribers; ESPN+ Joining Hulu

Disney+, the branded subscription streaming video service launched in late 2019, has topped 100 million paying members, CEO Bob Chapek said at the media giant’s March 9 virtual shareholder meeting. The SVOD service had reported having near 95 million subs in February. By comparison, market leader Netflix ended 2020 with 203 million subscribers.

“The enormous success of Disney+ has inspired us to be even more ambitious, and to significantly increase our investment in the development of high-quality content,” Chapek said. “In fact, we set a target of 100-plus new titles per year, and this includes Disney Animation, Disney Live Action, Marvel, Star Wars and National Geographic. Our direct-to-consumer business is the company’s top priority, and our robust pipeline of content will continue to fuel its growth.”

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Separately, Chapek said ESPN+, the sports-themed SVOD service with 12 million subscribers, would be incorporated onto the Hulu platform, enabling subscribers of both services to have easier cross-platform access. The CEO hinted that in the future Hulu subs would be able to access pay-per-view sports events on ESPN+ without a subscription.

Meanwhile, as COVID-19 vaccinations increase nationwide, Chapek said the company’s Orange County, Calif.-based legacy Disneyland and California Adventure theme parks would re-open in April. Both have been shuttered for about a year due to the pandemic.

Disney’s Bob Chapek: No Turning Back From Streaming Video

Walt Disney Co. CEO Bob Chapek has seen the direct-to-consumer future and he’s not looking back. Speaking March 1 on the virtual Morgan Stanley Technology, Media and Telecommunications Conference, Chapek said that while Walt Disney Studios embraces the theatrical market, consumer reality — with or without the pandemic — has altered the playing field.

“I think the consumer is probably more impatient than they’ve ever been before because now they’ve had the luxury of an entire year of getting [movies] at home pretty much when they want them,” Chapek said. “I’m not sure there’s a going back, but we certainly don’t want to cut the legs off a theatrical exhibition run.”

The executive doubts consumers will have much tolerance for the traditional theatrical window keeping a movie out of the marketplace for months with another distribution model “just sitting there getting dust.”

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On March 5, Disney will offer Raya and the Last Dragon to consumers via Premier Access, only the second Disney title since Mulan afforded the more-expensive PVOD retail distribution model

Raya and the Last Dragon

“It makes a lot of sense right now in a COVID world to have [another] option,” Chapek said. “Theaters are not going to be 100% back. It’s nice to know that people have that choice. But we like to let the consumer be our guide in almost all situations.”

Disney survived a calamitous 2020 — a year that saw the company’s legacy parks and amusements, cruise business and studio shuttered overnight a year ago due to the pandemic. Switching gears, the company focused on streaming video, specifically Disney+, Hulu (Hulu+Live TV) and ESPN+, ending last year with upwards of 150 million combined subscribers when excluding India.

“We essentially had to make a decision: Are we going to stay the course? Are we going to slow down investment and reserve cash? As you know, we stepped on the throttle pretty heavily and accelerated, figuring this was the time to make a giant leap forward,” Chapek said.

The former home entertainment executive contends Disney’s addressable DTC market is 1.1 billion people. As a result, he said the company chose investing “dramatically” in content and restructuring the company to better deal with the direct-to-consumer challenges in the pandemic era and beyond.

When asked about Disney’s move toward engaging consumers directly rather than through retail, Chapek said the company is well-versed with the strategy from its amusement and hospitality businesses. He said that unlike those legacy businesses, direct-to-consumer affords increased “frequency of engagement” and number of touch points.

“There’s an exponential benefit when you take the deep knowledge of our parks guest and … the direct-to-consumer, and put it all together by technology,” he said.

The executive said management has been surprised by the global appeal of Disney+, especially among non-families. Indeed, 50% of Disney+ subs worldwide do not have children, which he said opens up the possibility for more-expansive content offerings.

“That’s a big difference,” Chapek said.

He dismissed suggestions about a streaming war with Netflix, Amazon Prime Video, HBO Max and Peacock, saying there doesn’t have to one winner, but rather several.

“We think we’re tremendously positioned for DTC services,” Chapek said, alluding to the company’s planned $8 billion to $9 billion in streaming video investment through 2024. Disney unveiled 100 new titles at its recent investor day event in December.

Disney earned $11 billion at the global box office in 2019, which Chapek said remains “a big deal to us.” Notably, the CEO finds “more profound” the changes in consumer behavior towards movie consumption. To meet the rapidly evolving changes, Chapek said Disney has to be a “a nimble organization,” while acknowledging that the “sands under our feet” are shifting.

“Consumer behavior is shifting,” he said. “Consumer preferences are shifting. We want to make sure that as that happens, we are on the front of those waves, anticipating those changes.”

Free Ad-Supported ‘Disney+Star’ Set to Launch Feb. 23 — Outside the U.S.

Disney’s over-the-top video ecosystem is about to get larger with the scheduled Feb. 23 launch of Star within the Disney+ platform. The free AVOD tier will offer thousands of hours of movies and television programming from the company’s multiple studios, including content from the 21st Century Fox acquisition, i.e. FX, Searchlight, and 20th Century Studios, along with Star-branded exclusive originals and local programming, tailored to specific markets.

Star Plus is bowing in Europe, Canada, Australia, New Zealand and Singapore, with an additional rollout slated for Latin America in June.

Disney acquired the India-based Star brand through the Fox deal, which includes existing streaming service Hotstar. The latter includes exclusive access to Indian Premier League professional cricket, a national pastime. Hotstar is responsible for 30% of Disney+’s 94.9 million global subscribers.

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Disney+ features exclusive and catalog content from Disney, Marvel (“WandaVision”), Pixar (Soul), Star Wars (“The Mandalorian” and upcoming “The Book of Boba Fett”  and “Andor” series) and National Geographic.

“Star will be integrated into Disney+, as a distinct sixth brand tile,” CEO Bob Chapek said on the Feb. 11 fiscal webcast. “And will offer easy to use parental controls to manage access to the content.”

The platform looks to expand Disney’s OTT base of 146 million subs, which includes Disney Plus, Hulu, Hulu with Live TV and ESPN+.

“We’re less than two weeks away from launch and we’re seeing tremendous excitement amongst consumers,”Chapek said.

Chapek Upbeat on Disney+ ‘Premier Access’ Movies; Doesn’t Divulge ‘Mulan’ Revenue

Last Labor Day weekend, Disney released live-action sequel Mulan as a $29.99 “Premier Access” purchase option to Disney+ subscribers, in addition to theaters overseas. Despite considerable speculation since then, Disney has never formally released financial details regarding the movie’s PVOD purchases.

Speaking on the Feb. 11 fiscal webcast, CEO Bob Chapek again remained mum on Mulan details, teasing management was significantly pleased with the results to try the concept again on March 5 with Disney Animation’s Raya and the Last Dragon, which will stream concurrently with a theatrical release.

Bob Chapek

“The best thing I can say about Mulan, is that it was successful to the extent we are also using that [distribution] strategy for Raya,” Chapek said. “Individual decisions [will be made] in the future. Some films we’ll take theatrically; some films we’ll take theatrically plus Disney+; and in some cases we’ll take it directly to [streaming] service.”

Chapek said studio movies going forward are analyzed for their particular strength in a distribution channel, including whether they can become an additional “data point” in the company’s “exploration” of Premier Access day-and-date with theatrical.

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“It’s really about flexibility … and we’re going to steer our decision making over time given what information we get for our [customers] and our subscriber base,” Chapek said.

The executive said studio remains committed to releasing Marvel’s Black Widow, starring Scarlett Johansson, in theaters on May 7.

“We are going to be watching very closely the re-opening of theaters and consumer sentiment in terms of a desire to go back to theaters, to see if that [theatrical window] strategy needs to be revisited,” Chapek said.

Disney bowed Pixar Animation’s Soul exclusively as a freebie to domestic SVOD subs on Christmas Day, while released in select theaters worldwide. The movie has generated $100 million at the box office in Europe, Middle East and Africa since its debut Dec. 24, 2020.

“We were absolutely thrilled by what [Soul] did to our business, in terms of [Disney+ subscriber] acquisitions and retentions,” Chapek said. “It was a big hit with our subscriber base.”