“An awful lot of Disney+ subs are coming from Hotstar in India where they are either giving away Disney+ for free or way under a dollar,” says Tom Rogers, executive chairman of WinView and former CEO of TiVo and founder of CNBC. “About 25% of Disney+ subs now are coming in on that basis. I think the bull case gets ahead of itself when it doesn’t look under the hood a bit about those streaming numbers.”

Legendary media executive Tom Rogers says that investors need to look under the hood a bit with Disney+ because a quarter of its subscribers are from a low-revenue deal with Hotstar based in India:

WTH… 25% Of Subs From India

You’ve got to keep your eye on the long term prospects with Disney. They beat the drum about streaming. Their very good at getting people to focus on the shiny thing which is the streaming subscriber numbers for Disney+ that they put up. I think the bull case gets ahead of itself when it doesn’t look under the hood a bit about those streaming numbers. An awful lot of them are coming from Hotstar in India where they are either giving away Disney+ for free or way under a dollar. About 25% of Disney+ subs now are coming in on that basis.

Then you’ve got to worry that they gave away an awful lot for free when they launched a year ago. How many of those are going to roll off which we will see in the next quarter? Everybody’s focused on Disney+ numbers but Disney+ if you are over the age of 12 is really not the offering you’re focused on, it’s Hulu.

While people got a little disappointed in Netflix numbers last quarter, Netflix added 13 million subs for the year in the US. Hulu also added about 7 million subs and Hulu has about half the number of total subs so it has a lot bigger runway to grow. And that growth was not all that impressive. There is a lot of credit for the Disney+ launch that they had but there is a lot there that they got to still run with.

Disney Pouring More Money Into Streaming Content

The most significant thing on the earnings call yesterday was the announcement of the suspension of the dividend for January saying that they were going to heed the advice of Dan Loeb and pour more money into streaming content. While they certainly have beat the hell out of expectations that they originally set for subscribers for their streaming business they are going to have to re-stat in terms of what they laid out initially for programming expenditures.

It’s going to be much much more expensive than anything they originally indicated. Not only because Netflix is out there going toward a $20 billion programming budget in the next few years. This will allow Netflix to probably introduce a new movie or series every day. The competitive pressures on Disney are going to be huge.

Disney Now Has To Worry About Engagement

Disney now has to worry about engagement. How many people are watching? How much time are they spending? People are overwhelmingly spending time on streaming when it comes to Netflix and YouTube. Disney hasn’t yet got the kind of engagement that gives you pricing power and that price-value perception which really makes for a profitable service over time. That’s all about having to spend more money on programming.

They have a lot of competition for their programming dollar within the company because sports rights are coming up for renewals. Sports rights are going to go up 50, 60, 70 percent, or more and they have dwindling audiences to spread that rights cost around. That’s real competition internally for where they spend their programming dollars.