More people are subscribing to Disney+ than projected, marking a bright spot for the streaming service as it gears up to launch an ad-supported version.
Disney+ announced on Tuesday it added 12.1 million subscribers during Disney's fiscal Q4 2022, ahead of Wall Street's projections of just eight million subscribers. In total, the service has 164.2 million subscribers, and it also set 2024 as its date to achieve profitability for the offering.
"The rapid growth of Disney+ in just three years since launch is a direct result of our strategic decision to invest heavily in creating incredible content and rolling out the service internationally, and we expect our DTC operating losses to narrow going forward and that Disney+ will still achieve profitability in fiscal 2024, assuming we do not see a meaningful shift in the economic climate," said Bob Chapek, Walt Disney Company CEO.
Disney+ is hiking prices as of December 8, moving its basic plan from $7.99 a month to $10.99. However, it is also debuting a version with ads at the $7.99 level to give households an option.
"Theoretically, launching an ad-supported tier at a lower price should boost Disney+ subscriber numbers, but whether or not this happens will depend on many unknowns, such as the price point and the ad experience, which is everything from how many ads are served per hour to whether viewers are going to see the same ads over and over, as happens on other streaming services," said Paul Verna, Insider Intelligence senior analyst.
In terms of demand for Disney+ originals, Parrot Analytics ranks the service third behind Netflix and Amazon Prime video. The firm noted that the demand for Disney+ originals declined about 9.2 percent between Q3 2021 and Q3 2022, which may show that Marvel and Star Wars franchises may not have as much pull on subscribers. However, the beat on new people to the Disney+ service shows that customers are still very interested in the House of Mouse's offerings.
Disney's streaming services Hulu, ESPN+ and Disney+ have a combined 235 million streaming subscribers. Revenue for the direct-to-consumer division reached $4.9 billion, an increase of 8 percent, but the operating loss went up from $0.8 billion to $1.5 billion. Part of the reason for the increased operating loss included higher programming and production costs, as well as more marketing and tech expenses. Disney also did not have a Premier Access release this quarter, which requires Disney+ to pay an additional fee to access new releases.
"What will determine the winners and losers in this space isn't just how much they spend, but how smart they are about the shows and movies they make, when they release them, and how they monetize them," Verna said. "In all those areas, Disney has proven to be among the more savvy competitors."
Overall, Disney's missed analyst estimates on earnings per share as well as revenue for its latest quarter. It reported earnings of $0.30 cents (on an adjusted basis) versus the $0.50 cent Refinitiv estimate. Revenue came in at $20.15 billion, below the $21.24 billion estimate. Disney's parks and resorts division faired well, with a revenue increase of 34 percent, but recent indefinite closures of the Shanghai Disneyland park have highlighted the effect COVID-19 still has on travel.
Despite the positive streaming news, Disney shares still declined more than 6 percent in after hours trading.