Friday, September 30

Disney earnings could define how industry views future of streaming


A performer dressed as Mickey Mouse entertains guests during the reopening of the Disneyland theme park in Anaheim, California, US, on Friday, April 30, 2021.

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Disney will put a stamp on how the media industry views streaming’s growth potential — at least for the time being — when it announces its quarterly earnings results on Wednesday.

The possible conclusions are “don’t panic” or “call the doctor.”

Wall Street analysts on average expect that Disney added about 10 million Disney+ subscribers during the period, pushing its total global customers for the service to about 147 million, according to FactSet.

If Disney hits or exceeds that forecast, investors and media executives can file the quarter away as one that showed mixed trends for the industry. It will suggest the global streaming market isn’t nearing saturation. With the right product, in certain regions of the world, Disney can show entertainment companies are still capable of adding many millions of subscribers in a quarter.

That’s particularly important for Disney Chief Executive Officer Bob Chapek, who in February stood by his forecast that Disney+ will have between 230 million to 260 million subscribers by the end of 2024. That gives the company 11 more quarters, including the one reported Wednesday, to reach its goal. Disney will need to add an average of about 8.5 million subscribers a quarter to reach the low end of the range.

If Disney+’s net addition are well below 10 million or — even worse — below 8.5 million, the last quarter will go down as disastrous for media and entertainment companies racing to build their streaming businesses.

don’t panic

With double-digit million net adds for Disney+, Disney would join Paramount Global as relative winners for the past three months. Paramount+ added 3.7 million subscribers, including 1.2 million disconnects in Russia, in the quarter.

Disney is already taking steps to ensure Disney+ growth continues. It plans to launch a cheaper advertising-supported tier by the end of the year. Last month, Disney also raised the price of ESPN+ 43% to $9.99 per month but kept its bundled offering of ESPN+, Disney+ and Hulu stable at $13.99 per month.

That price increase should move more solo ESPN+ subscribers to the bundle, increasing Disney+ customers. Disney also launched Disney+ in 42 new countries and 11 territories in June, which should help boost adds both its fiscal third quarter and its current quarter.

Adding 10 million subscribers in the quarter and forecasting another 10 million adds in the next will help convince investors that Netflix’s sudden stalled growth is not reflective of the entire entertainment industry. Netflix reported a loss of 1 million subscribers in the quarter and forecast a gain of just 1 million subscribers for its third quarter. Netflix has 221 million subscribers worldwide.

There’s some evidence Netflix investors believe the company has hit a temporary bottom rather than an extended slowdown. Netflix shares have risen 19% since the company announced its quarterly earnings on July 19. The gain suggests there’s belief that Netflix will be able to reinvigorate subscriber and revenue growth in coming quarters, spurred by a cheaper Netflix advertising-supported tier, a password sharing crackdown and the company’s push into video games.

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call the doctor

An underwhelming Disney quarter, by contrast, would be more evidence for the argument that streaming’s growth is waning.

Comcast’s NBCUniversal followed Netflix’s earnings by reporting no subscriber gains for Peacock, and Warner Bros. Discovery reported last week HBO Max and Discovery+ gained just 1.7 million subscriberscombined.

If streaming growth worldwide is slowing, it’s possible far fewer households are interested in subscribing to more services than previously thought. Netflix, for example, have said it expects the total addressable market for subscribers is 800 million to 900 million households globally outside of China.

Already, analysts are predicting Disney may have to lower its 230 million to 260 million guidance, especially after the company didn’t renew streaming rights to the Indian Premiere Leaguethe top Indian cricket league, for Disney+ Hotstar.

“At some point, we believe Disney may have to cut its streaming guidance,” Barclays media analyst David Joyce wrote in a note to clients. “However, it may be a bit early for the company to walk back on Disney+
guidance (ex Hotstar) even if the company was planning to do that.”

A poor Disney quarter could potentially mark this quarter as a turning point for the entire industry, when the biggest media and entertainment companies realized chasing streaming subscribers was no longer a winning plan.

Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.

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