Walt Disney CEO Bob Iger has realized something that Star Wars and Marvel fans have known for a long time. The Disney+ streaming service can offer a lot less new content at higher prices and fans of those two franchises won't cancel their subscriptions.
Basically, Walt Disney (DIS) needs to have enough new content in its two major franchises to maintain a release cadence where it does not make sense for customers to cancel and wait until something new comes out. That's a slower release schedule than the roughly one new episode in a major Star Wars, or Marvel release Disney+ maintained for its first few years.
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You can argue that Disney already has enough archival content on Disney+ that anyone with young kids will pretty much have to subscribe. The Pixar and classic Disney animation library alone justify the expense, so really, Disney just has to serve its teenager and adult customers in order to maintain its subscriber base.
That means that Disney can slow down its content spending, eliminate less-popular fringe programming, and really focus on serving its core audience. And, it can do those things while raising prices.
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Disney CEO Sees Disney+ Price Increases
Disney has already raised Disney+ prices since the service launched, but Iger made it clear that more increases are coming during his comments in the company's second-quarter earnings call.
"The pricing changes we've already implemented have proven successful. And we plan to set a higher price for our ad-free tier later this year to better reflect the value of our content offerings," he said,
Iger believes that the ad-free tier can be priced at a premium because he sees major opportunity in selling more ads. That's a market he believes Disney will be able to capture as it moves from having separate apps for Disney+, Hulu, and ESPN to offering a single-app experience,
"Despite the near-term macro headwinds of the overall marketplace today, the advertising potential of this combined platform is incredibly exciting," he shared. "And when you drill down into the details, you can see why. Over 40% of our domestic advertising portfolio is addressable, including streaming, which we expect will continue to grow over time."
Disney's Streaming Services Will Get Less New Content
While Iger did not directly say that Disney would be cutting its content spending, that has been happening. The CEO did indirectly address the issue.
"It's critical we rationalize the volume of content we're creating and what we're spending to produce our content," he said.
Iger also made it clear that Disney could leverage ABC, its cable channels, and other distribution to spread out its content expense. It has been doing that as some Disney+ exclusive shows have had cable airings.
"Second, our legacy platforms enable us to expand our audiences and often augment our potential streaming success while, at the same time, allowing us to amortize our content costs across multiple windows," he added.
It's not that Disney isn't going to spend billions on streaming, it's just going to be a lot more careful than it has been. That's probably good news for tent pole shows and big-name characters, but bad news for say, season two of "She-Hulk," or more oddball Star Wars standalone shows.
"We are confident that we're on the right path for streaming's long-term profitability: the strength of our content, the one-app experience, and the enormous advertising potential that comes with it, rationalizing the volume of the content we make and what we're spending. maximizing windowing opportunities, recalibrating our investments internationally, perfecting our pricing model, and consolidating our global streaming business," the CEO shared.
