Great or Just Good? Wall Street Parses the Disney+ 50 Million Milestone

The Mandalorian Disney+ - H - 2019

While the company's 60 million to 90 million forecast by 2024 now seems in easy reach, some Wall Street analysts say the inclusion of the India subscribers may cause "misunderstanding."

With The Walt Disney Co. late Wednesday disclosing that its streaming service Disney+ has surpassed the 50 million paid subscriber milestone globally, several Wall Street analysts highlighted that the streamer was performing ahead of expectations and bringing the Hollywood giant some much-needed positive news amid the coronavirus pandemic.

Disney shares, which have been hit by the virus crisis given that analysts see it affecting not only the conglomerate's theme parks but also its various other businesses, in early trading were up 4.4 percent at $105.53. Several analysts noted that Disney's projection that it would reach 60 million to 90 million Disney+ subscribers by 2024 now seemed within easy reach.

"With Disney+ set to launch imminently in some of the major Asia Pacific markets, and soon thereafter across other international markets in Eastern Europe and Latin America, we see the nascent service tracking well ahead of Disney's initial target of 60 million to 90 million subscribers by the end of the fifth year," CFRA Research analyst Tuna Amobi wrote in a report. "Ironically, we expect Disney+ to be a major beneficiary of increased in-home streaming amid social distancing practices resulting from the COVID-19 outbreak, even as the global pandemic is significantly weighing on some of Disney's far-flung businesses."

"I think it's fair to say it's ahead" of subscriber expectations, Wells Fargo analyst Steven Cahall similarly tells THR about the success of Disney+. But he was among several observers who noted that Disney's inclusion of 8 million paid subscribers in India, where Disney+ recently launched on Disney's streaming platform Hotstar, was potentially making comparisons with Wall Street estimates — which in many cases don't seem to include India — more confusing. 

"This is 50 comin' out your stereos, hard to tell though cause I switched the flow," Cahall wrote in a report, citing lyrics from a 50 Cent song. "It's unclear how Hotstar's advertising VOD [tier] is accounted for in the 8 million, though Disney's press release uses the key phrase 'paid subscribers' for both the total 50 million and the Indian 8 million. Excluding India AVOD, our model had Disney surpassing the 50 million milestone in the December 2020 quarter."

Bernstein analyst Todd Juenger said the figures for India, where Disney+ became available on Disney's streaming platform Hotstar, cause "much of the potential for misunderstanding." He said he had forecast Disney+ to reach 40 million subscribers by the end of Disney's fiscal year in September, but hadn't included Indian subscribers in that estimate and hadn't expected "many" additions in the second and third calendar year quarters. He said Wall Street overall had projected the service to hit the 40 million mark by the end of March, but it wasn't clear to him if others' forecasts included Indian subscribers.

"While the headline announcement is strong, and certainly we have no dispute that Disney+ is off to a tremendous start, it doesn't seem to us this announcement is actually much different/better than [analyst] expectations" when adjusted for India, Juenger concluded. "Some investors would also argue there was some degree of extra, unanticipated positive impact from the current stay-at-home situation."

Others also cited the fact that consumers have been locked up at home due to the novel coronavirus and looking for entertainment as one factor that has been boosting the growth of Disney+. Because of restrictions on public gatherings, Disney has also said it was adding movies to the streaming service earlier, such as Pixar's Onward.

But other analysts were more bullish on the 50 million milestone than Juenger. "Disney is going to smash its own publicly announced subs target. Disney+ is a blockbuster hit with users," PP Foresight analyst Paolo Pescatore tells THR. "All eyes are now on Netflix’s first-quarter results to see if Disney+ has had a negative impact on subs base, especially in North America."

What impact has the coronavirus pandemic had? "What is interesting is that many 'intenders' will have jumped in earlier than anticipated due to the lockdown, but during this period behavior will become established," Futuresource Consulting analyst David Sidebottom says. "Yet new subscriber acquisition will be more challenging in the second half of 2020. However, … low price, partnerships, early key movies and fresh content, along with the strong content library — effectively the service becomes a digital locker for Disney content — will help it maintain some, albeit steadier, momentum in the second half of 2020."

Analysts also highlighted, though, that retaining subscribers for the long-term will be key for Disney+. "The rapid uptake has meant that retaining its monthly, unbundled subscribers is as, if not more important, than the acquiring of new ones," says Sidebottom. "A significant proportion of its subscriber base are effectively locked in for at least the short term due to being on an annual subscription or being bundled with a telco, mobile operator or pay TV provider. Therefore its exposure to this risk is reduced for the second and third quarters at least."

Some say subscriber retention could become more challenging for Disney+, like for other streamers, amid the coronavirus pandemic, which has put productions worldwide on ice.

Richard Broughton, research director at Ampere Analysis, tells THR the Disney+ subscriber update corroborates "our assumption that SVOD services will benefit from underlying demand for content across markets in lockdown." But he also warned that the second half of 2020 "will likely see secondary effects from the COVID-19 pandemic." He explained: "A small catalogue makes Disney+ particularly vulnerable in the mid-term to COVID-19-linked content supply shortages, so we anticipate that the short-term subscriber interest spikes we are witnessing in the first half will be partially counteracted by mid-term dwindling consumption volumes in the third and fourth quarter."

Concluded Brougthon: "Disney has already indicated it will begin to push certain movie releases onto Disney+ to help with the content supply issue. However, if key series such as The Mandalorian are delayed sufficiently, impacting the fourth-quarter slate substantially, we would expect elevated churn in the end-of-year period, with a negative impact on net additions relative to current projections."

"The biggest challenge will always be keeping users entertained. It is fair to say that many users would have signed up to the annual offer or bundles on both sides of the pond," Pescatore similarly tells THR. "This will help maintain its total base steady for the first year. However, Disney and others are not immune to the current challenges of filming new shows. This will have a knock-on effect next year."

LightShed Partners analyst Richard Greenfield in a Twitter reaction to the Disney+ figures focused less on the success to date, but urged the company to push for bigger business changes ahead. "With 50 million subs and growing, Disney should use Disney+ to replace theatrical window — raise pricing to $15-$20/month and include new movies as part of a subscription," he wrote. 

Futuresource estimates that approximately 30 million of the 50 million Disney+ subscribers are in the U.S., while the U.K. subscriber mark is "now likely to be approaching 4 million" and India accounts for the 8 million detailed by Disney. Juenger on Thursday similarly estimated about 12 million subs in the U.K. and Western Europe. 

He offered investors the following explanations on the Indian subscribers: "When Disney+ was launched in India, our understanding is that all Hotstar subscribers were converted to Disney+ subscribers automatically. Since the Disney press release specifically references 50 million 'paid' subscribers, we believe only the Hotstar paying subscribers were included in that count, which apparently was 8 million. The price for the Hotstar paid plans, which now include various amounts of Disney+ content, has been set higher. Our understanding is existing Hotstar paying subscribers will be transitioned to the new, higher rate when their contracts expire. In this sense, the only actual incremental contribution from the 8 million Indian Disney+ subs is: a) any incremental subscribers who signed up at launch, who weren't already paying Hotstar subscribers; and b) the incremental revenue from the higher price."

He concluded: "If one attributes 100 percent of the increased price to Disney+, that means the monthly incremental average revenue per user from Disney+ is $0.04 per month for the VIP plan, $0.55 per month for the Premium plan. In other words, if all 8 million subs signed up for the most expensive Premium plan, the incremental annual revenue to Disney would be only $53 million. Plus, the full incremental from any of the 8 million subs who were truly incremental, new sign-ups as a result of the Disney+ launch." 

Futuresource in a report argued that "COVID-19 has provided a major boost, particularly amongst families with younger children," explaining: "In addition, the current scenario has convinced many of those who were previously intending to sign up, to make the jump earlier than they had planned. In its original November launch markets, the combination of the lockdown and availability early release titles such as Frozen II and Onward have further boosted growth in recent weeks."

Following its Nov. 12 U.S. launch, the service on March 24 became available in the U.K., France, Germany, Italy, Spain and other European countries. It launched in India on Friday and in France on Tuesday. "We're truly humbled that Disney+ is resonating with millions around the globe and believe this bodes well for our continued expansion throughout Western Europe and into Japan and all of Latin America later this year," said Kevin Mayer, chairman of Walt Disney direct-to-consumer & international.

By reaching the 50 million milestone, Disney+ has exceeded the reach of corporate sibling Hulu, which has more than 30 million subs. It still has a ways to go to catch streaming giant Netflix and its 167 million subs.