Disney Plus Exceeds Expectations for Subscriber Growth in Q2 of Fiscal Year

Disney Plus exceeded expectations for subscriber growth in the second fiscal quarter, adding 7.9 million new paying users. During the same period, competitor Netflix lost its first customer in more than a decade.

Walt Disney Co.’s streaming service has announced that it currently has 137.7 million paying subscribers worldwide. Q2 earnings I spoke to investors on Wednesday (May 11), which was 2.7 million more than analysts had expected. Approximately 36% of new subscribers are Disney Plus Hotstar subscribers, 32% are domestic subscribers in the US and Canada, and 31% are international subscribers.

In Asia, the media company’s streaming service Disney Plus Hotstar accounted for more than half of net subscriber growth for the quarter ended April 2, and CFO Christine McCarthy said it was attributable in part to the start of the Indian Premier League season.

In comparison, Netflix lost 200,000 subscribers in the three months through March 31st. Netflix forecasts an unprecedented 2 million global paid subscriber loss in the second quarter, and CEO Reed Hastings said the company will consider introducing an ad-supported tier to revitalize growth.

Disney announced in March We plan to launch the ad-supported tier of Disney Plus in the US later this year and expand internationally in 2023.

Disney CEO Bob Chapek told investors the company is “in really good shape” to meet schedules for the advertising tier “because we’re already doing it”.

“The combination of our experience with the ESPN+ streaming technology stack, Hulu, and software — we believe our core advertising capabilities are already fairly well-prepared to run this tier. There is no need for us to acquire or develop anything new in any significant way. “It’s well-oiled,” he said.

The media mogul said it expects the advertising tier to increase the average revenue per user (ARPU) for Disney Plus and help the streaming service achieve its goal of achieving profitability in fiscal 2024.

Chapek said: “The Disney Plus ad tier will give us the ability to reach a much broader audience as we expand Disney Plus into multiple price points. The price has been lowered due to the additional revenue you can earn per user on your ad spend. We believe we can cascade up the net price over time.”

ARPU for Disney Plus subscribers increased 9% in Q2, largely due to a 55% increase in ARPU for Disney Plus Hotstar subscribers. In comparison, ARPU of domestic subscribers increased by 5%.

McCarthy said growth in subscription revenue “partially offsets” rising programming and production, marketing and technology costs to support Disney Plus’ expansion.

In the fourth quarter, Disney’s total direct-to-consumer (DTC) revenue increased 23% to $4.9 billion and operating loss increased by $600 million to $900 million.

McCarthy said he expects third quarter DTC programming and production costs to increase by more than $900 million year-over-year. This is because it reflects the rising cost of original content on Disney Plus and Hulu, the rising cost of sports rights, and the rising cost of programming on Hulu Live.

The company continues to suffer losses in content sales and licensing revenue as it decides to pull all the originals from other streaming services. Quarterly content sales, licenses and other revenue declined 3% to $1.9 billion and operating profit fell from $312 million to $16 million.

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