The grow-at-all-costs phase of the streaming wars is over; Now the focus is on profits.
With subscriber growth slowing in their core home markets, some streaming services are shifting their focus from adding users to increasing their bottom line. The result is that streamers like Walt Disney Co. DIS 4.68% , Netflix Inc. NFLX -0.58% and Warner Bros. Discovery Inc. WBD 4.43% each saw a combination of cost cutting, price increases and the creation of new ad-supported Carry out stages Offer content to consumers at lower prices, but also create a new revenue stream for the companies.
The price increases are justified by the amount of content offered, say the streaming providers. “We have a lot of wiggle room on price,” Disney DIS 4.68% chief executive Bob Chapek said on Wednesday.
The price hikes come as domestic growth has stalled, typically the most profitable market for streamers. Just 100,000 of the 14.4 million net new subscriptions to its flagship service Disney+ during the quarter came from the U.S. and Canada. Of the rest, about 8 million came from India, while about 6 million came from other countries, including 52 new markets where Disney+ launched since May.
“Domestically, Disney+ is tapped,” said analyst Rich Greenfield of LightShed Partners. “Disney anticipates that, just like their theme parks, they will drastically increase prices and rest assured that customers will not discontinue service.”
Disney said it will increase the price of its ad-free, standalone Disney+ service in the US from $7.99 to $10.99 per month in early December, and the company will begin offering an ad-supported tier for Disney+, starting at 7 $.99. The company also announced increases on one of its bundle packages.
In addition, the company reduced its projections for the total number of worldwide Disney+ subscribers, mainly in response to lower expected growth in India, where Disney was recently outbid for the rights to stream matches from a popular cricket league.
Markets welcomed the news of the company’s price hikes and better-than-expected quarterly results. Disney shares rose 4.7% on Thursday to close at $117.69.
Investors and analysts expect that higher subscription costs and ad rollout at Disney+ will drive higher profits from the streaming segment, but note that price increases risk deterring some customers and impacting the platform’s churn rate, or percentage of users, who cancel the service, increase month. The US churn rate for Disney+ is already on the rise, rising to 4% in the second quarter from 3.1% a year earlier, according to media analytics firm Antenna.
“We don’t think there will be any significant impact on our churn in the long term,” Mr. Chapek said of the price hikes. He said Disney+ was one of the most affordable streaming services when it launched and has become more valuable over time as it’s added more popular shows and movies.
Other companies that focus on video streaming are taking similar steps. Warner Bros. Discovery, the newly formed media giant that owns premium television service HBO and streaming services HBOMax and Discovery+, reported last week that it added 1.7 million new subscriptions. As with Disney, all of Warner-Discovery’s subscription growth came from overseas — its direct-to-consumer segment lost 300,000 domestic subscribers in the quarter.
David Zaslav, the CEO of the newly formed company, has stymied Warner-Discovery spending and several high-budget films in production or nearing completion destined for release on HBOMax, including Batgirl and “Wonder Twins”, then axed, decided the best return on investment for them was a tax write-off.
“Our focus is on building a real business with meaningful global ambitions, but not one that’s chasing subscribers at all costs or blindly trying to win the content spend wars,” said JB Perette, Head of Streaming at Warner-Discovery , in a conversation with analysts last week.
Warner-Discovery said it expects losses at its streaming business to peak this year and expects the segment to be profitable in 2024. Similarly, Disney predicts its direct-to-consumer segment has been growing since Disney+ Lost More Than $7 Billion By Late 2019 Disney+ Will Be Profitable By September 2024
HBOMax has signaled that it will launch an ad-supported tier next year. The company has alluded to a new pricing strategy centered on the goal of streaming profitability, but hasn’t disclosed pricing details.
“We will say goodbye to heavily discounted promotions,” said Mr. Perette.
Netflix saw churn skyrocket after it increased the price of US plans by $1 to $2 earlier this year. In the US and Canada, the company lost 1.3 million subscribers in the second quarter, more than double the 640,000 it lost in the region in the first quarter. Like Disney+, Netflix is now trying to increase the revenue per user they generate by selling ads.
This helps streaming services make more money from their existing subscriber bases while also providing an alternative to raising prices, according to industry analysts.
Existing Disney+ subscribers will automatically be placed on the ad-supported tier unless they choose the higher-priced ad-free version, and some shows, like “Dancing with the Stars,” will stream ad-free at any tier, a Disney executive said. According to Disney, advertising load on Disney+ will generally be lighter than other services and will benefit from consumers canceling cable subscriptions and replacing them with streaming services.
Netflix said in July that it expects some loss of subscribers after a price hike and that attrition will return to pre-raise levels.
The Los Gatos, California-based company has announced that its upcoming ad-supported tier of service is likely to appeal to more price-conscious customers who are willing to pay less in exchange for viewing ads. Netflix hasn’t said how much its ad-supported tier will cost, but it’s expected to cost less than the most basic plan currently available, which costs $9.99 per month for a single viewer with the lowest video resolution quality .
While overall U.S. net subscriber growth has slowed and more consumers are switching between streaming services, the time people spend watching streaming content continues to increase, said Marc DeBevoise, CEO of video technology company Brightcove. That trend makes selling ads a more attractive strategy for streaming services, he said.
“It doesn’t require more people to subscribe, but there are more hours to capture,” he said. “It’s still a growing pie of total viewership.”
write to Robbie Whelan at [email protected] and Sarah Krouse at [email protected]
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