Disney+ nears 100M subs worldwide as ARPU dips

News Analysis Jeff Baumgartner, Senior Editor, Light Reading 2/11/2021

The Walt Disney Company's direct-to-consumer streaming strategy continued to pay dividends as it saw gains across most of its major premium subscription OTT services in fiscal Q1 2020.

Disney+ ended the quarter with 94.9 million subscribers, adding almost 22 million during the period. However, the average monthly revenue per paid sub for Disney+ dropped to $4.03, from $5.56, primarily due to the recent launch of Disney+ Hotstar, an Indian SVoD service operated by Star India that sells the service at a lower average range than Disney+ does as a standalone streaming service in other markets around the globe.

Disney has been pitching its trio of premium streaming services in a bundle as well as a standalone basis.

Update: Analysts are keeping a close watch on these numbers. "ARPU is a crucial driver of the long-term Disney+ model," Vijay Jayant, analyst with ISI Evercore, explained in a research note following Disney's results. Assuming Disney+ hits the mid-point of fiscal year guidance of 245 million subs, with 65% taking a non-Hotstar offering, by then every $1 of ARPU will be worth $2 billion of pure margin revenue, he added.

Disney+'s latest customer total puts it on a path to more than double its subscriber base in the coming years. MoffettNathanson's most recent forecast sees Disney+ nabbing between 230 million and 260 million subs by the ends of fiscal year 2024, well ahead of an earlier projection that Disney+ would have 155 million subs by then.

Hulu's subscription VoD-only service grew to 35.4 million subs, up from 32.5 million in the prior quarter. Roughly 4 million subs took Hulu's SVoD + Live TV service as of the end of fiscal Q1 2021, down from the 4.1 million it had at the end of fiscal Q4 2020. Hulu's ARPU for the SVoD-only service rose from $13.15 to $13.51 thanks to higher per-sub advertising revenues.

The quarterly weakness for Hulu's live TV service has caused some analysts to continue to question the business model viability of virtual multichannel video programming distributors (vMVPDs), many of which have been forced to raise prices in recent months.

The vMVPD story keeps getting worse

In calendar Q4 2020, Disney reported Hulu Live lost 100K subs, compared to adding 300K subs last year in Q4

not sure there is a worse biz in legacy media than vMVPDs and yet $FUBO holders 🤦‍♂️🤦‍♂️🤦‍♂️ pic.twitter.com/GWXL6awPWI
— Rich Greenfield, LightShed (@RichLightShed) February 11, 2021

ESPN+ fared well, ending the quarter with 12.1 million subscribers, up from 10.3 million in the prior quarter.

Disney's direct-to-consumer revenues for fiscal Q1 2021 hit $3.5 billion, up 73% year-over-year. Operating costs for the DTC unit fell to $466 million, versus $1.11 billion a year ago, due mostly to improved results at Hulu and, to a lesser extent, at Disney+ and ESPN+.

"We believe the strategic actions we’re taking to transform our company will fuel our growth and enhance shareholder value, as demonstrated by the incredible strides we’ve made in our DTC business, reaching more than 146 million total paid subscriptions across our streaming services at the end of the quarter,” Bob Chapek, Disney's CEO, said in a statement.

Disney's success with DTC, with an integration with Comcast's Flex and X1 platforms nearing completion, puts the media giant in great stead in a subscription streaming market led by Netflix and Amazon Prime that is also being pursued aggressively by WarnerMedia (HBO Max), ViacomCBS (CBS All Access, with Paramount+ on deck), NBCUniversal (Peacock), and Discovery (Discovery+).

Troubles elsewhere

Still, The Mouse's DTC success wasn't enough to offset troubles at other parts of the business.

Disney's content sales/licensing business was down 56%, to $1.7 billion, in the quarter. However, revenues for linear networks were up 2%, to $7.69 billion.

Total Disney revenues dropped 22%, to $16.24 billion, due mainly to a pandemic that has forced the closure of theme parks and reduced capacity and sailings of Disney cruise ships. Disney said it took an approximate operating income hit of $2.6 billion in the quarter at its Disney Parks, Experiences and Products segment.

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— Jeff Baumgartner, Senior Editor, Light Reading