Disney+ Subscriber Forecasts Raised After Verizon Giveaway Deal

Disney

Wall Street sees Disney losing billions to launch streaming services before earnings rebound in 2024.

No one says winning the war among streaming services led by Netflix will come cheaply or overnight, least of all Disney.

An unfolding long view from the Mouse House was revealed Tuesday when Disney and Verizon unveiled a giveaway pact to offer the phone giant's wireless and internet customers a year of Disney+ for free from Nov. 12.

Michael Nathanson, a media and telecom analyst at MoffetNathanson, sees the deal to bundle Disney+ with Verizon hardware as part of a long-term plan to lose billions to launch streaming services like Disney+ and ESPN+, rather than sell stuff to Netflix and other distributors, in return for a rebound in profitability and share value starting in 2024.

"Rarely has a company willingly created this much financial disruption in strategically pivoting to a new business model," Nathanson said Wednesday in an research note as Disney has already sustained losses from reclaiming content from rivals, buying up stakes in Hulu and owning the BAMtech technology.

Disney+ leads a wave of billion-dollar Netflix competitors like WarnerMedia's HBO Max, Apple+ and Comcast's Peacock that are transforming the entertainment industry. Striking distribution partnerships as Disney and Verizon have is a page from Netflix’s playbook as the streamer‘s service has landed on set-top boxes of pay TV giants like Comcast, Charter and Liberty Global’s Virgin Media.

But with Verizon, Disney is betting on mobile to build reach for Disney+. This dash for the streaming space isn't cheap: The storied Hollywood studio has so far invested $2.6 billion to acquire streaming technology, shuffled Disney's executive ranks to launch a new direct-to-consumer division, given up $150 million in annual income by ending the studio's output deal with Netflix and spent $71.3 billion for the 21st Century Fox assets to bolster Disney's production capabilities and content library.

But Nathanson forecasts that even if half of Verizon's mobile and internet customers opt-in and purchase Disney+ after one year, Disney could gain around 9 million U.S. subscribers in the first year. And he has projected Disney+ to have around 18 million worldwide subscribers by the end of 2020.

For Nathanson, that should ensure Disney — as it minds its core studio assets, launches new streaming services and integrates Fox's content production and libraries — will be seen less as victim of cord-cutting and audience erosion like some of its rivals than making a "major long-term positive" pivot to the streaming space.

Nathanson is not alone among analysts in arguing the Disney-Verizon giveaway pact should help the Hollywood studio eventually regain its losses from competing mainly against Netflix and climb even higher with revenue and share price valuations.

UBS analyst John Hodulik, in an research note issued Tuesday, argues the Verizon giveaway deal reduces risk for Disney as its pursues subscribers for Disney+. "The Verizon/Disney partnership is another example of Disney's advantages in its effort to gain scale in DTC (direct to consumer) services in the 'land grab' phase of the market," he wrote.

UBS is also raising its subscriber uptake forecasts for Disney+ as Hodulik expects the 12-month giveaway to be followed by Disney+ customers getting access to a slate of TV originals and movie titles like Avengers: Endgame, Aladdin, Toy Story 4, The Lion King, Frozen 2 and Star Wars: The Rise of Skywalker, "and potentially other reclaimed content."

Disney is projecting between 60 million and 90 million global streaming subscribers by 2024, more than the 28 million U.S. members that Hulu currently has and in line with the 83 million that Netflix had within five years of separating its streaming subscription service from its DVD plans.