- Share this article on Facebook
- Share this article on Twitter
- Share this article on Email
- Show additional share options
- Share this article on Print
- Share this article on Comment
- Share this article on Whatsapp
- Share this article on Linkedin
- Share this article on Reddit
- Share this article on Pinit
- Share this article on Tumblr
Two and a half years after launch, Disney appears to be closing in on its long-stated goal for Disney+: making it profitable.
In the company’s quarterly earnings report and analyst call May 11, CFO Christine McCarthy reaffirmed that Disney+ should begin turning a profit in fiscal 2024. And comments by McCarthy and Chapek give a clue as to what the path to profitability will look like.
For starters, Disney is beginning to take a closer look at content spend. Disney is not alone here (Netflix and Warner Bros. Discovery executives have also indicated that they will be keeping a close watch on content budgets), but the company’s quarterly report gives some indication that the Mouse House is already making tweaks.
After telling investors last year that it planned to spend $33 billion on content in fiscal 2022 (and reaffirming that number three months ago), this week the company disclosed that it now plans to spend a mere $32 billion on content this year, a $1 billion haircut. McCarthy said that the cut was due to a “slower cadence of spending than anticipated during the first half of the year.”
To be sure, Disney is still spending an enormous sum on content, with spending this year expected to be $7 billion higher than in fiscal 2021. The report also disclosed that the company spent $2.1 billion on content for Disney+ last quarter, up from $1.1 billion a year earlier. And McCarthy warned that the company will add another $900 million or so in content spend next quarter.
But the downward forecast on content spend indicates that the company may have hit its spending peak. “We’re very carefully watching our content cost growth,” Disney CEO Bob Chapek said.
Chapek also laid out another way the company plans to save cash on Disney+ content: general entertainment fare, and international titles.
Chapek said that for those titles, “relative content expenditure is a little cheaper than our typical franchise expenditure on a per-program basis.” In other words, it’s cheaper to produce entertainment without the Marvel or Star Wars brand, A-list stars, and expected production quality. And with Disney+ expected to add more general entertainment and international fare in coming years, the economics will improve accordingly.
At the same time, Disney is plotting to turbocharge Disney+’s average revenue per user (ARPU), which has lagged behind Netflix since it launched. ARPU at Disney+ is $6.32 in the U.S., compared to ARPU of $14.92 in the U.S. and Canada for Netflix.
“As we increase our content investment, we believe that that’s going to give us the ability to adjust our price,” Chapek told analysts Wednesday, hinting at price hikes to come, at least for the ad-free tier. Meanwhile, an ad-supported tier will likely benefit from the strong economics demonstrated by Hulu, which has ARPU of $12.77, despite most users opting for the $7 per month ad-supported tier.
So while the future of Disney+ subscriber numbers remain somewhat choppy — with McCarthy noting that a strong content slate toward the end of the year could be offset by the stronger-than-anticipated first half of the year, combined with “geopolitical factors” around certain upcoming Disney+ market launches in Eastern Europe — long-term, the company’s streaming strategy appears to be on track.
Streaming may not be as good a business as the old pay TV model (Chapek said that the linear networks like ESPN remain “huge cash generators for us” and are helping to fund streaming expansion), but it can be a profitable one. And Disney laid out a plan Wednesday to get the service there sooner rather than later.
Sign up for THR news straight to your inbox every day