As it aims for Disney+ profitability by 2024, CEO Bob Chapek’s team runs the numbers and decides that it has enough market clout to avoid too much subscriber churn with increased prices.
The Bob Chapek-run Hollywood giant revealed the new pricing Aug. 10, just as Disney reported strong third-quarter earnings. The company showed solid momentum and spending at its domestic parks, as well as growing subscriber numbers, overtaking Netflix for the first time with 221 million total subscriptions across its bundle. Both factors show resilience among consumers, according to Disney executives, even in light of inflationary concerns.
The increased pricing notably comes several months after Kareem Daniel, chairman of Disney Media and Entertainment Distribution, announced the tier’s launch in March, saying, “Expanding access to Disney+ to a broader audience at a lower price point is a win for everyone.” Disney’s focus aligns with the thinking on Wall Street, where some see subscriber numbers as more of a placeholder metric before streamers reached profitability, says Bank of America analyst Jessica Reif Ehrlich. Subscriber numbers were already a problematic measuring stick, she adds, because they are “backward looking” and also volatile due to the level of subscriber churn. “Ever since Netflix stumbled in Q1 and Q2, the valuations have changed,” Reif Ehrlich notes.
The focus on profitability raises questions about Netflix’s approach to its ad tier, which is the next to launch in early 2023. Asked whether Disney’s pricing has any impact on Netflix’s plans, a spokesperson for the company says there have been no updates since the company’s second-quarter earnings report in July.
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