Disney Accelerating Pivot To DTC-First Business Model

During yesterday's earnings call Disney CEO Bob Chapek said it has accelerated the company's pivot towards a DTC-first business model....
Disney Accelerating Pivot To DTC-First Business Model
Written by Rich Ord
  • During yesterday’s earnings call Disney CEO Bob Chapek said it has accelerated the company’s pivot towards a DTC-first business model. “Our recent strategic reorganization has enabled us to accelerate the company’s pivot, towards a DTC-first business model and further grow our streaming services,” says Chapek. “Disney+ has exceeded even our highest expectations, in just over a year since its launch with 94.9 million subscribers. ESPN+ and Hulu have also performed well, with 12.1 million and 39.4 million subscriptions, respectively.”

    Chapek attributes the company’s massive streaming growth to its huge collection of brands. “The wealth of IP from our unrivaled collection of brands and franchises provides us with an incredible breadth and depth of storylines and characters to mine for Disney+ and our other streaming services,” says Chapek. “We have the ability to interconnect these storylines and characters in unprecedented ways as we saw with The Mandalorian and WandaVision tying into the broader Star Wars and Marvel franchises. We’re excited to continue exploring the endless possibilities that this unique ecosystem provides.”

    DTC Results Improved By $650 Million

    “We believe that we’ve got a great price-value relationship,” says Chapek. “I think the best insulation we’ve got (to lower churn) is to keep the price-value relationship very high and there’s no better way to do it than powerhouse franchises cranking out regular new releases on a monthly basis.”

    Disney’s direct-to-consumer results have improved by nearly $650 million versus the prior year. “Last quarter, we guided to direct-to-consumer operating income declining by $100 million versus the prior year under our former segment structure,” says Disney CFO Christine McCarthy. “Our reported results are $750 million higher than that guidance.”

    Lower Disney Losses Attributed To Disney+

    Disney attributes their lower losses to the growth of the Disney+ streaming service. “A lower loss in the first quarter compared to the prior year was driven by subscriber growth partially offset by higher costs due to the launch and expansion of Disney+. With 94.9 million paid subscribers at the end of Q1, Disney+’s global net additions were 21.2 million versus Q4.”

    “Disney+ Hotstar subscriber additions continued their strong growth trend with Disney+ Hotstar subscribers making up approximately 30% of our global subscriber base,” said McCarthy. “We also saw strong additions to our subscriber base from our November launch in Latin America.”

    Disney Happy With Level Of Churn

    Disney is also very happy with its level of churn especially as it relates to subscribers who came into the Disney+ service via their Verizon partnership which helped power its launch last year. “We are very pleased with what we’ve seen so far on the level of churn,” said McCarthy. “And as our product offering matures and we put more content into the service and our subscriber base becomes more tenured, we expect to see our churn rates continue to decline.

    So in regard to the specific churn related to the anniversary of the Verizon launch promotion from last November 2020, we’re really happy with the conversion numbers that we have seen there going from the promotion to become paid subscribers.”

    100 New Titles a Year

    “With Disney+ originals along with the theatrical releases and the library titles, we’ll be adding something new to the service every week,” noted McCarthy. “We are very pleased with the engagement overall. We believe we’re going to reach that cadence of getting content on the service every week within the next few years. We’ve also set that target for 100-plus new titles per year. And that’s across Disney Animation, Disney Live Action, Pixar, Marvel, Star Wars, Nat Geo. And of course, we’ll continue to add more to our library as we go through time as well.”

    “Given the value of growing our sub base, we are continuing to invest in high-quality content,” says McCarthy. “We believe that content is the single biggest driver to not only acquiring subs, but retaining them.”

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