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Why Disney took calculated risk to release 'Mulan' on Disney+

dot.LA Chief Correspondent & Former Disney Senior Analyst Kelly O'Grady joins Yahoo Finance's Alexandra Canal and Zack Guzman to discuss how 'Mulan' being debuted on Disney+ could impact the future of movie releases in Hollywood.

Video Transcript

ZACK GUZMAN: Let's chat Disney, because that stock's up by about 50% off of its March lows back when we did see that first big sell-off tied to the pandemic. And right now they've got quite the test coming up with the launch of their live action film "Mulan." It's out today on Disney Plus at an additional price tag of about-- well, exactly $29.99.

The question becomes, how many of these subscribers are going to be willing to pay that price? And also, as they release this one outside of theaters direct to Disney Plus, what success might look like, exactly how much money should we expect Disney to pull in through this. And here to discuss that with us is Kelly O'Grady, dot.LA Chief Correspondent and former Disney Senior Analyst in Corporate Strategy and Business Development right on topic here, along with Yahoo Finance's Alexandra Canal back with us.

And Kelly, I mean, you were going through the numbers. This is exactly your job when you were there. And tell us how we should be thinking about this since, obviously, the market here is a little bit smaller then just releasing this in theaters. So what will give Disney an A-plus on this release?

KELLY O'GRADY: Yeah, of course. Thanks for having me on, Zack and Allie. This is a really interesting one. I'm so impressed by Disney's continue to push towards trying out different modes of distribution and being really disruptive, and this is a perfect opportunity for them to do that. So you've got about 60 million subscribers on Disney Plus.

And so normally with live action remakes like "Beauty and the Beast," "Aladdin," so "Mulan" falls into this category, you see anywhere from $400 million to $1.7 billion at the box office worldwide, right? So like, "Lion King" was the $1.7 billion. That's a little bit of an outlier because we all love "Lion King."

And so in order to actually get to that number on the low end, you need about a quarter of Disney Plus's subscribers to reach that $400 million. And if you want to pass that $1 billion mark, that coveted sort of badge of honor in the film industry, you're going to need about 50% of Disney Plus subscribers. That's a lot.

Now, that doesn't take into the count-- into account the fact that it is getting a release in China, in theaters, and in places where Disney Plus doesn't exist. So it's not exactly apples to apples. But what is really interesting is kind of the caveat here, which I'm so curious to see how this does because this could be huge for Disney in the future, is that $1 spent on Disney Plus is way more valuable to them than $1 spent at the theater.

In the theater, AMC, if you're going to see it at that theater, might take about 40% to 50% of a film's box office over the life of a film. And on Disney Plus, you've got Apple, and Google, Amazon just jumped in at the last hour releasing it, taking about 30%. But Disney's going to take 100% if you buy it directly on DisneyPlus.com. So kind of a little bit of an interesting twist there.

ALEXANDRA CANAL: And hi, Kelly. So personally, I was pretty surprised to see Disney go this route with "Mulan." It's a major tentpole, $200 million. And as you mentioned, it is alienating a significant portion of theatergoers that just don't have a Disney Plus subscription.

So out of all those examples that you just listed, what do you think was that motivating factor that Disney wants to get out of this experiment because it's still a risk? Is it being able to harvest all that data? Is it, as you mentioned, retaining 100% of those profits? What do you think was the main thing that they wanted to get from this?

KELLY O'GRADY: Undoubtedly data, and potentially more Disney Plus sign-ups, right? So I have a couple friends I was talking to, and they said to me, oh, my gosh. I'm going to go sign up for Disney Plus right now. I want to watch "Mulan" this weekend. And so that-- there's an element of stickiness there.

It's so easy to hop between subscriptions right now. You've got HBO Max, Peacock, all of these ones out there, and you kind of just decide, OK, well, this is coming out. "The Boys" is coming out on Amazon this weekend. I'll sign up for Amazon Prime. But then you can just let go of it, whereas you'll actually have Disney Plus-- or "Mulan" in your library, which is huge.

And the fact that Disney would have access to all of that data and they'd know, in my case, I'm going to watch "Mulan" tonight, but I'm also a huge "Frozen" fan, and I watch that over and over, so they might start targeting me via email to come hang out with Olaf at the parks once the pandemic makes that a little bit more possible. So this-- this access to data is huge. I think the-- you know, the other caveat is that this-- this is one of those films that it's going to be very hard to reach the $1 billion mark.

You know, whether it's in theaters, whether it's over Disney Plus, it's just a weird time for everyone. But it gives them an opportunity to test this out and see hey, are people willing to pay? And is this something that we could start to do more in the future, which would give us more data, and also give us a way to still monetize these franchises in a world where a pandemic happens again?

ZACK GUZMAN: Yeah, and asking, I mean, half of your subscriber base to go ahead and purchase something like this, pay an additional $30, it is, as you said, a very interesting test. But beyond that, I think-- I don't know if this is big in your mind, but trying to maybe capture a little bit more on the advertising spend front right now as you're talking about scooping up some Disney Plus subscribers off the launch of "Mulan" seems like a pretty interesting opportunity, just because, as you said, all the ads right now are basically pushing both of those.

You're talking about a film that a lot of people know, but also you have to sign up for Disney Plus to even watch it, unless, you know, you want to wait, I don't know, until, you know, you can wait till December and not pay the additional $30 bucks right now to watch it on Disney Plus. But I'm curious how important is that when you think about capturing more of those advertising dollars, not just to get people to watch "Mulan," but also to sign up for Disney Plus?

KELLY O'GRADY: Absolutely. I mean, of course, all of the people that were huge Disney fans signed up for Disney Plus, families and such. But they need to think about how are they going to keep this staggering growth going, right? Streaming has become such an important part. They're going to release a new streaming service under the Star brand with Fox. Like, this is becoming more and more their bread and butter.

But you also need to ensure that it's-- as we've talked about in the past, Zack, this becomes a profitable segment for them. And in order to do that, you just need to rack up those subscribers quickly. I mean, we're already at numbers that I think they expected to see by 2024, because the pandemic has changed the game. But if there's anything that they can do to get people really, really into Disney Plus and make this sticky as we start to come out of the pandemic, that's going to be huge in terms of reaching profitability potentially sooner than they might expect.