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Disney (DIS) Rides on Disney+ Growth, Strong Content Portfolio

The Walt Disney Company DIS is benefiting from an expanding content portfolio of Disney+, which is driving user base growth. Disney+, as of Jul 2, 2022, had 152.1 million paid subscribers compared with 116 million as of Jul 3, 2021.

Disney, at the end of third-quarter fiscal 2022, had 221.1 million (including Disney+, ESPN+ and Hulu) subscribers, more than Netflix’s NFLX user base of 220.7 million, which it reported at the end of June.

ESPN+ had 22.8 million paid subscribers at the end of the fiscal third quarter compared with 14.9 million at the end of the year-ago quarter. Hulu ended the quarter with 46.2 million paid subscribers, up from 42.8 million reported in the year-ago quarter.

The rapidly growing subscriber base strengthens Disney’s position in the increasingly saturated streaming space currently dominated by Netflix and the growing prominence of services from Apple AAPL, Comcast CMCSA, Amazon prime video and HBO Max.

New President & Ad-Tier for Disney+

Disney recently appointed Alisa Bowen as the President of Disney+, effective immediately. Bowen will continue to report to Michael Paull, President, Direct to Consumer, Disney Media Entertainment & Distribution.

Disney is now set to launch a new ad-supported offering for the Disney+ streaming service starting Dec 8, 2022. The new ad-supported Disney+ Basic subscription will cost $7.99 a month, which is the current pricing for Disney+ without ads. Disney noted that the ad-free subscription plan will be called Disney+ Premium and will cost $10.99 a month.

Disney is also raising the price of its Hulu subscription. The ad-free tier will jump from $12.99/month to $14.99, while the ad-supported version will cost $7.99/month, up from $6.99. The new pricing goes into effect on Oct 10, 2022. A price hike for ESPN+ streaming was announced in July, taking the monthly price from $6.99 to $9.99/month.

Subscription costs for users with an ad-free Disney+ subscription along with an ad-supported plan for Hulu and ESPN Plus will increase from $13.99 to $14.99/month. Disney is also introducing a bundle that includes Disney+ and Hulu with ads for $9.99/month. Meanwhile, bundled together, Disney+, Hulu and ad-supported ESPN+ will cost $19.99/month.

Disney has also adjusted the pricing for its Hulu live TV bundles. Hulu’s live TV bundle with ad-supported Disney+, Hulu, and ESPN+ plans will cost $69.99/month. The live TV bundle with ad-free Disney+, as well as ad-supported Hulu and ESPN+ plans, will cost $74.99. Users will have to spend $82.99/month to get a live TV plan without ads on Disney+ or Hulu and ad-supported ESPN+.

Stiff Competition Remains a Headwind

Competition in the streaming space is becoming stiff with the launch of numerous services.

Disney’s closest peer Netflix is also set to introduce a new lower-priced ad-supported subscription plan apart from its existing ad-free basic, standard and premium plans.

Apple’s streaming service, Apple TV+, continues to gain recognition with its critically acclaimed and popular shows like Ted Lasso.

Comcast’s Peacock also offers a free-to-watch tier with ad support that has about 40,000 hours of content. Peacock is well poised to grow, owing to its vast library of IPs and new productions.

Nevertheless, Disney is expected to benefit from the increase in ad-free subscription pricing as rising production and programming costs for Disney+ and higher sports programming costs at ESPN+ contributed to operating losses in the recently reported fiscal third quarter.

Direct-to-Consumer revenues increased 19% year over year to $5.1 billion and operating loss increased $0.8 billion to $1.1 billion. The increase in operating loss was due to a higher loss at Disney+, lower operating income at Hulu, and to a lesser extent, a higher loss at ESPN+.

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