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  • KPB & Co Research

Main Points

  1. Disney+ passes 60.5Mn subscribers in Q3 of 2020 well ahead of schedule (expected in 2024).
  2. Netflix reached 62.5Mn subscribers in Q1 2015, after 18 years of operation.
  3. Disney's strong brand recognition, wide high quality content, and excellent product positioning are the main accelerants.
  4. Growth also seen in Hulu, with ESPN+ impacted by the halt in sports due to the pandemic.

Disney Is Emerging As A Big Player

It was just under a year ago that investors in the technology and media space were arguing which company would take the third spot in the world of video-on-demand subscription services. At the time, the #1 spot belonged to Netflix, and #2 belonged to Amazon, as people were impressed by the staggering numbers that these companies were putting up. Netflix had approximately 158Mn paying subscribers globally while Amazon had just over 90Mn global prime members of which prime video accounted for a fraction (as part of bundled group of services). The #3 spot was seen as a toss up between a number of players including HBO, Apple, and NBC Universal, as Disney despite having an impressive content catalog only had one foot in the video-on-demand space. Disney, through its ownership of ESPN+ had a spot in the live TV Sports category and, through its 67% ownership of Hulu had a spot in both video-on-demand and liveTV, but most of its valuable cinematic content were unavailable on direct-to-customer basis.

Today, Disney has built up a formidable number of subscribers and is well positioned to continue growing. On November 12, 2019, Disney launched its video-on-demand service - Disney+ - to customers in the US and Canada. Following the launch in North America, the service was launched in Australia, New Zealand, and Puerto Rico on November 19, 2019, and then in Austria, United Kingdom, Spain, Italy, Germany, Ireland, and Switzerland on March 24, 2020. The company went on to launch Disney+ in India on April 3, 2020 through its existing service Hotstar and Japan on June 11, 2020.  By the end of March 28, 2020, the new Disney+ service had 33.5Mn subscribers, and by April it had 54.5Mn, June 57.5Mn, and by August it had 60.5Mn.

On the Q3 conference call the new Disney CEO mentioned that it will be launching in the Nordic areas, Belgium, Luxembourg, and Portugal in September 2020, and in Latin America during November 2020. They will also launch Disney + Hotstar in Indonesia as they look to be in 9 of the top 10 markets worldwide by year end. The company is also expected to launch another direct-to-customer platform internationally in 2021 which is expected to cover a different demographic of customers. According the CEO:​

We will launch a new international direct-to-consumer (DTC) offering named Star that will sit alongside its recently rolled out streamer Disney+. The new service will launch next year and will offer general entertainment programming from across Disney’s businesses, including ABC Studios, Fox Television, FX and 20th Century Studios.
— Bob Chapek on Q3 Conference Call

When you look at the number of paid subscribers across all the content platforms (Disney+ 60.5, Hulu 35.5Mn and ESPN+ now 8.5Mn ) the company has just over 105.5Mn paid subscriptions combined, gaining significant ground on the incumbents in the space. Just to put things into perspective, Netflix hit 104Mn subscribers in Q2 of 2017 after 20 years of operating. Netflix is still ahead of the game as they have 193Mn paying subscribers, while Amazon has around 150Mn prime subscribers (consider that Amazon prime consist of video, music ,and free shipping). It is clear that Disney is now a contender for both the #1 and #2 spots as Netflix is currently in 190 countries with a 87Mn head start while Disney+ will be in about 38 countries by year end. As for the other potential contenders, HBO Max and HBO combined has about 36.3Mn subscribers  as at June 30, 2020 according to Warner Media, and there is limited data on Apple TV+.

Disney's Success

Disney's  superior growth in the direct-to-customer space is due to a number of factors including excellent skills in marketing and distributing its direct-to-customer services worldwide. Notwithstanding, the tremendous work that Netflix has done in building its brand, Disney has built-up more brand equity over the 97 years the company has existed. The brand is also very visible as they have theme parks, retail stores, and hotels which provides multiple touch points through which the company can spread the news about its new services. The release also came at the right time as many people were stuck at home due to lockdown measures and needed some form of entertainment. Leading up to the release of Disney+ the company had also built-up substantial distribution channels particularly in Asia, and Europe, which gave them tremendous reach in foreign markets. Undoubtedly, the company has some of the best content in the industry spread out over 4 primary franchises. They have the traditional Disney content, Pixar, Marvel, and StarWars, and they recently added National Geographic.   

Given the reputation of the brand, and the depth and quality of the content under its control, the company priced its services at probably the best price-to-value relationship in the industry. 

Price Points By Streaming Service
Source: Cheddar

At US$6.99/Mth the Disney+ is among the lowest in the industry, the only company lower thus far is Apple TV+ which does not have even half as much of the content that Disney has. As outlined, the quality of the Disney's content is above most other industry players which partly explains the fast growth seen.

Upcoming Releases

Over the coming months, Disney is seeking to release a number of new titles that it expects will drive more traffic and consumer excitement.  One the most eagerly anticipated film is Mulan which Disney expects to release on a premier access basis on September 4, 2020 for  an additional fee of US$29.99. This release is expected to be on a one-off basis as special accommodations are made for the effects of the global pandemic. The company also expects to release, The Right Stuff from national geographic this fall,  the second season of Star Wars: The Mandalorian, and  The One and Only Ivan on August 21, 2020

​Final Remarks

​The streaming wars continues bring about surprises every month or so. No one predicted, not even Disney's own management team that they would have been able to hit 60.5Mn subscribers in less than a year. Of course part of the reason for the massive surge is due to something no one could have predicted - that being the spread of COVID-19 and and ultimately the lockdown measures that ensued. In fact Disney is not the only company that saw a massive rise in subscribers, as Netflix also saw its own estimate exceeded due to lockdown measures. But, even with those things considered, it still says a lot about the quality of the content that Disney owns just based on the fact that it was all accomplished in less than a year. Certainly, it does not appear that the likes of HBO & HBO Max had similar fortunes. Disney's emphasis on content for the family also makes it table stakes at the home, which puts them in line for the #1 or #2 spot.

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