Walt Disney Co – Streaming Update & Strategic Positioning

Could you give an overview of Disney’s streaming operations, pulling out 2-3 trends or drivers impacting the business?

What are your thoughts on Disney’s streaming strategy? How would you characterise the company’s approach to this globally? Across its full streaming portfolio, there is Disney+, ESPN+, Disney+ Hotstar and Hulu.

How has Disney’s approach to streaming shifted over the last couple of years and how has this segment evolved? You said the company hit some of its benchmarks quicker than anticipated, and now it’s recalibrating its targets. What might be the changes in terms of assumptions and its general approach to streaming?

What are your thoughts on Disney’s content strategy? Its core content is Marvel, Star Wars, Pixar and the classic Disney titles. You mentioned perhaps needing to branch out from kid-friendly, and we’ve seen a little of this in terms of the first R-rated titles on Disney+ and some changes in the content the company is providing. What other areas might it shift towards as it continues to try to grow the subscriber base?

You mentioned it would make sense to have more content that appeals to adults. How would this affect Disney’s appeal to a global audience? One thing that has been highlighted as part of the company’s success is many of its brands have had a lot of resonance overseas, not just in US-based markets – Marvel and Frozen are global phenomena. How might this be impacted if it moves to titles that might not have that obvious global brand to build up with?

How does Disney+’s shift play in with its plans for Hulu? Hulu has traditionally had a wider range of content in terms of the user segments it’s pursuing, but its future is a little uncertain given the deadline with Comcast in terms of ownership. How does Hulu fit into this plan and how might it affect the content Disney+ may be showing?

You said Hulu could be a good home for the content through the Fox acquisition, but it’s not necessarily an investment priority. Certainly, there is the argument that given the January 2024 deadline to purchase the remaining 33% stake from Comcast, the company might not invest more because that could drive a higher buying price in 2024 from a competitor if Hulu becomes larger. At the same time, you’re saying there may be logical uses for Hulu to fit in with the broader Disney organisation. Considering this deadline, do you think it’s more likely that Disney will be holding on to Hulu and that it is part of the company’s longer-term plan? Might it make sense to fully divest it and let Comcast take control or perhaps some other scenario, given it’s not an investment priority?

The third leg of the streaming options, ESPN+, has about 22 million subscribers. Could you walk us through that offering, your assessment of its rollout and any other thoughts?

You mentioned sports fans aren’t jumping around as much, but you need a big draw to bring subscribers to a platform. Sports streaming rights are quite expensive – Disney’s NHL deal is about USD 400m annually, but this takes up a fairly substantial amount of ESPN+ revenue. The price recently increased to USD 9.99 per month from USD 6.99, but even then, with 22 million subscribers, a lot of those from the bundle vs paying the full amount, it’s still only generating around USD 100m per month. That’s substantial when looking at USD 400m deals just for one sport, but it’s probably challenging to balance this content’s value with the subscriber growth uptick. How could that calculation evolve, particularly as major sports streaming rights have become quite competitive and expensive in recent years? How might Disney consider trying to build out titles and deals to draw people to ESPN+ vs how much investment is worth making when this might not drive the growth it might hope for at these price points?

You’ve highlighted the challenges in going up against the big tech names entering the sports streaming space, with Amazon and Apple competing for football streaming rights as well as others trying to get a foothold and willing to open up their pocketbooks to make large brand deals. You also have the traditional players, such as Netflix, Amazon Prime and HBO Max. Where do you see Disney+ and the rest of the Disney streaming assets within this space?

You mentioned bundling is an effective way to draw in subscribers and have them be a bit more sticky considering the pricing competitiveness and the breadth it can offer. Disney seems more inclined to raise rates or subscription pricing for individual parts, but much more hesitant to do that with the bundle given it’s so much of a driver of sticky customers. Could the bundle pricing remain similar going forward if the company is hesitant to play around with this, considering it has been so successful? Also, when people get on ESPN+ or Disney+ through the bundle, it definitely drives down average revenue generated for a subscriber on any of the individual three. Do you have any other thoughts here?

What are your thoughts on Disney’s positioning relative to other major streaming players? Obviously, one big news story is Netflix releasing or developing its ad tier. Do you have initial thoughts about dynamics in the pure streaming competitive landscape?

A lot of people viewed Netflix’s move to an ad-tier as a change in DNA, but also potentially a necessity as its management is a little worried about where streaming market share dynamics are trending. Why are you saying not necessarily to worry and thinking of it more as a test, of perhaps not having a success? Could you expand on why you’re pessimistic on that offering’s outlook?

Netflix has been quite outspoken about the impact of password sharing limiting the subscriber base, how a substantial amount of households are perhaps enjoying the service without contributing to the company’s revenue, and other streamers are having the same issue. Is this also a predominant issue for Disney and what might be done by the company to mitigate this? Netflix is rolling out some features in some ex-US markets in LATAM.

What are the major churn drivers and what would you expect that to look like going forward? You mentioned the bundle is an effective way for getting sticky customers and also the different user segments, which have variability in terms of stickiness.

Roughly 50% of Disney+ subscribers are from international markets. What are your thoughts on the company’s efforts to expand ex-US, perhaps highlighting key markets? What has your general impression been of those efforts and the trajectory of ex-US growth?

How have you seen Disney+’s more recent rollout in LATAM going and how successful has it been?

We’ve touched on a number of Disney’s growth drivers. Could you highlight the biggest risks or challenges that could impact the company?

What is your 1-3-year outlook for Disney and do you have any concluding thoughts?