Disney (NYSE: DIS) investors woke to an eye-popping surprise on Friday, as the company's stock soared as much as 13% in pre-market trading, though the spike leveled to around 10% by Friday afternoon. These gains come in the wake of the company's investor day presentation Thursday that provided more particulars about Disney+, its forthcoming streaming service.
We now know much more about how Disney+ plans to approach the direct-to-consumer market, and shareholders are certainly excited about the potential. Let's take a look at what the company revealed and why it has investors so upbeat.
Image source: Disney.
The most important details
The two biggest reveals about the service answer questions about when and how much, and neither disappointed. Disney executives said the streaming service will debut on Nov. 12 in the U.S. for a monthly subscription price of $6.99. There will also be an option for an annual membership at $69.99. The service will have a staggered rollout across Europe, Asia-Pacific, and Latin America in the coming two years after it debuts in North America.
The cost of the service was the biggest wild card, and investors had long wondered how it would compare to the competition. Last year, Disney CEO Bob Iger said, "I can say that our plan on the Disney side is to price this substantially below where Netflix is." That price level is sure to attract the Disney faithful and many more.
Content by the numbers
Disney has a treasure trove of films in its library and is opening the vault for the debut of its service.
The company expects to have more than 100 recent films and over 400 library movies available within the first year, providing plenty of options for viewers. Disney is also developing 25 new series and movie specials that will be exclusive to the platform. Existing series will also play a large part in the offering, with more than 7,500 episodes from a variety of shows. By year five, those numbers are expected to jump, with more than 50 new series, 120 recent movies, 500 library films, and 10,000 television episodes. The programming will come from across the company's Marvel, Pixar, Lucasfilm, and Disney brands, as well as contributions from Fox and National Geographic.
This will include all 13 movies in the Disney Signature Collection, including Snow White and the Seven Dwarfs, Pinocchio, The Lion King, and The Little Mermaid, which will all be available at launch. A extensive library of other fan favorites including Mulan, Lilo & Stitch, Moana, Zootopia, and Big Hero 6 will be available as well. Within a year of its introduction, Disney+ is expected to have every Pixar movie, nearly all of the Star Wars films, and most of the Marvel movies, and will be adding new releases within months of their theatrical releases. From its Fox assets, Disney will also have all 30 seasons of The Simpsons available for viewing at launch.
Image source: Disney.
Ambitious financial and subscriber goals
Disney CFO Christine McCarthy also shared the company's ambitious member goals over the next several years. Disney+ is shooting for between 60 million and 90 million subscribers by the end of fiscal 2024, with about one-third of those from the U.S. and two-thirds from international markets. The company plans to augment its existing library with more than $2 billion in original content investment in the coming five years. This is expected to result in operating losses over the next several years, with a projected move to profitability by 2024.
There are ambitious plans for ESPN+ as well. The dedicated sports service, which acts as a companion to the ESPN cable channel, has attracted more than 2 million subscribers to date; Disney hopes to have between 8 million and 12 million members by 2024. Disney expects the service to produce operating losses over the next two years and reach profitability by 2023.
Related to its acquisition of Fox assets, Disney now has a controlling stake in Hulu, which also figures in the company's streaming plans. Hulu boasts more the 25 million paying members today, but Disney anticipates between 40 million and 60 million subscribers by 2024. Operating losses at the segment are expected to peak in the coming year and move to a profit by 2023 or 2024.
A little fun with numbers will help put Disney's goals into context. If Disney is able to reach the midpoint of its membership goals for both Disney+ and ESPN+, (and accounting for the latter's existing subscribers) the company could add billions in additional revenue. Using the monthly cost for illustration purposes, the services could generate an additional $6.29 billion and $479 million each year, respectively. For reference, Disney's total revenue was $59 billion for fiscal 2018, so this would represent an 11% increase.
Calculating Hulu's contribution would be much more problematic, because the service has three tiers: a lower-cost, ad-supported option for $5.99, a more expensive ad-free service for $11.99, and a live TV option for $44.99 -- and the company doesn't break out its subscriber metrics by segment. Additionally, Disney owns a 60% majority control in Hulu, so there are still other owners who will also get their cut of the proceeds. Suffice it to say that if Disney is able to reach its lofty subscriber goals for Hulu, that will no doubt add to its tally.
Considering how much Disney has to gain from its foray into streaming, it's no wonder investors were bidding up the stock on Friday.
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Danny Vena owns shares of Netflix and Walt Disney and has the following options: long January 2021 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.
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