Former executive at The Walt Disney Co
- Disney’s (NYSE: DIS) operating environment – 2022 and 2023 subscriber growth expectations
- Disney+ Hotstar update – subscriber TAM, penetration expectations, ARPU evolution, competition and IPL (Indian Premier League) significance
- Disney’s Star – update and implications for EMEA and LATAM subscriber growth, ARPU evolution and content slate needs
- Outlook for 2022 and beyond – long-term potential from streaming pivot and margin implications
Many of the legacy studios are doing a balancing act between what has been a linear model on the network side with affiliate plus advertising, and the traditional studio output into theatrical and subsequent syndicate windows. There’s a secular transition to which the market is prioritising streaming. How might that balance evolve for players such as Disney? Could it become more difficult over the next 3-5 years to maintain and operate at a minimal decline on the linear side, while also investing what’s needed for the streaming side?
You said you expect streaming to be NPV-positive over time but what is that due to? How do you think about the ability for what will be the streaming asset – probably all things included, Disney+, Disney+ Hotstar, ESPN+ and Hulu – vs what had been a very high-margin licensing revenue business and the strong reach associated with getting retrans fee off the base tier of bundle in the historical paid TV penetration? Do you consider this an offensive pivot and accretive vs the historical model, or is it more of a defensive move due to evolving consumer preferences?
What’s the way to assess the global subscriber TAM? It seems even various management teams have differing numbers – Netflix and Discovery refer to a 700 million to 800 million household TAM, whereas Disney alludes to a 1.1 billion household TAM. Why is Disney sizing the market opportunity at that 50,000-foot view as slightly higher vs some competitors?
Do you expect ex-US, longer-term penetration levels – western Europe, maybe even eastern Europe at a lower ARPU, developed APAC and Japan – to face similar penetration rates vs the US, either based on paid TV or broadband? How should we segment it on a very hyperlocally? I appreciate there are differences in the dynamics where the higher or lower penetration countries might exist.
Presumably by targeting the individual, Disney can get aggressive on pricing. Do you think Netflix is pricing itself higher than Disney+ Hotstar and local competitors because it thinks it has premium content? Is that a large reason why there’s not been great penetration in India so far?
Assuming Disney stays focused on affordability, meaning ARPUs potentially don’t move materially higher than the USD 1 dynamic, do you think north of 50% of 800 million-1 billion smartphone subscribers is very achievable for a 5-10-year horizon?
How challenging could it be for Disney to retain the rights for cricket and IPL [Indian Premier League] for this upcoming renewal, given Reliance and Amazon also bidding? What framework might be necessary if retaining them remains not too large of a profit-loss leader?
Can you elaborate on Disney+ Hotstar’s other markets? What’s the order of magnitude for Indonesia, Philippines or Malaysia vs what exists in India?
Do you think Disney is more likely to spend at all costs to retain the rights because it is still in the growth phase for India, or do you think there is a bonkers plan where it becomes too expensive so might let them go? How tolerable could it be around how high the rights inflation might end up being?
What are the considerations for regions such as the UK, where there is strong over-the-air content? You alluded to those not being monetised in the linear market because it was free to air, but that’s now changed. If using this over-the-air option, would respective markets penetrate at a much lower rate than the US, or at least the ARPU pricing power is much lower than if there wasn’t a good free-to-air option?
How much more difficult might the growth phase become given Disney is approaching Netflix-type numbers in the US? Do similar saturation issues exist in western Europe and Canada, or are there plenty of remaining growth areas despite the US getting fully tapped out for Disney+ already?
You mentioned LATAM could be more of a wholesaler vs retail market. Which other areas are similar and what drives that differentiation or the success through wholesale markets vs D2C?
How do you feel about Disney+’s 230-260 million subscriber goal by 2024?
Disney is planning USD 33bn content spend for 2022, but excluding sports it could be USD 22bn on general entertainment categories, which consists of a 300-plus production slate over the next 1-2 years. Much of it is streaming-first, but how are you rating the intended spend amount and the balancing of the linear and streaming sides vs competitors?
I appreciate Netflix might be more focused on global content, but what’s the extent of Disney achieving strong penetration in some of the emerging markets? I still consider there to be much higher churn vs the typical US subscriber, particularly in India. Does Disney still need to spend a larger portion of local content vs Netflix to avoid super-high churn in the regions it penetrates?
What’s your opinion of Disney remaining very flexible around its movie distribution techniques? Universal or Warner Bros seem to have pivoted back to a 45-day exclusive theatrical window, whereas Disney still seems flexible in where it wants to put content. Are there risks with that flexibility?
How much pricing power can Disney have in considering its 300-plus production content pipeline coming into the fold? There’s also the pricing headwind and the degree to which emerging markets will represent the overall subscriber base. Do you think Disney will be talking about Netflix-like ARPUs over time?
There seems to be a 2-6% churn per month dynamic, but do you expect this to improve as the developed market saturates?
Are there generational tailwinds to the USD 1 ARPU in India as we assess GDP growth or as the economy continues to scale? How might the long-term ARPU dynamic play out for Disney+ Hotstar subscribers?
We spoke offline about the differences in Netflix vs Disney as a wholesale partner opportunity and who is easier to work with. If Disney is slightly more flexible now, is it likely to face further headwinds from its wholesale partners in how deals are struck? Alternatively, could it trend in Disney’s favour? Is there an opportunity to gradually claw back some more of the economics when you think about mobile carriers?
Most of the uncertainty is due to the high degree of execution risk in Disney’s hands over the next few years, now that the plan has been laid out. How well can it manage those execution risks and the culture shifting from legacy studio to this new streaming entity over time?
How might the SVOD landscape develop more broadly over the next 5-10 years? What themes could be most important to monitor?
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