It's going to be even more expensive to watch Walt Disney's (DIS -0.04%) most popular streaming service without ads soon. The media giant is increasing the premium subscription rate for Disney+ by $3 to $13.99 a month in October. The 27% increase follows a similar $3 hike in December.
A lot of streaming services have firmed up their pricing this summer, but Mickey Mouse takes the Scrooge McDuck cake. Disney+ without commercial interruptions was $7.99 a year ago. It will cost 75% more than that in two months. It could be a brilliant move, the grand gesture that helps turn Disney+ into a profitable platform. It could also be a colossal mistake, one that sends subscribers scrambling elsewhere after the platform's stellar initial burst.
Making your streams come true
It's not just temperatures heating up this summer. There's been a price bump in a major media company's digital offering every month this season. It started with Paramount Global (PARA -2.22%) rolling out a 20% increase for Paramount+ in June. Comcast (CMCSA 1.85%) followed with its own 20% boost for Peacock Premium a month later. August just happens to be Disney's month to brandish the pricing gun.
Another $3 increase may not seem like much in the scope of family budgeting decisions. It's still a riskier call than last year's hike, and we've seen back-to-back quarters of sequential declines in domestic Disney+ subscribers since that move.
One can only imagine what a 75% pricing move in less than a year will do to churn. If you were on the fence about sticking around after December's hike this could be the nudge that sends you to the cancellation screen. Let's go over some of the other reasons why this is problematic timing on Disney's part.
- Disney expects that $3 billion of the $5.5 billion in annual cost savings that it's looking to realize by the end of next year will come from content costs. This is content across all of Disney's businesses, but inevitably Disney+ will see less new programming than before.
- It recently took an accounting hit on existing content that it's removing from the service. In short, subscribers are paying more for less.
- The writer and actor strikes continue. It won't be long before the narrowing pipeline of current projects is felt by viewers.
- The economy has been surprisingly resilient, but many economists still see a recession coming at some point next year.
- With prices rising across most of the leading ad-free services -- including Disney's majority-owned Hulu -- viewers will ultimately have to be more active in managing their current subscriptions. For some families, Disney+ is indispensable. However, if you're just opening the app to stream new seasons of The Mandalorian, you'll be fine without Disney+ for nine months of the year and with another $125 in your pocket.
Image source: Disney.
Park place
Disney isn't saying this, but it seems to be taking the same approach with its direct-to-consumer streaming services as with its iconic gated attractions. It's hoping to make more money with fewer customers. Despite drawing smaller crowds at Disney World lately than it did before the pandemic, the world's leading theme park operator revealed that revenue at its Florida resort was 21% higher in its fiscal third quarter than for the same late spring-early summer period in 2019. Adjusted operating income was 29% higher.
The good news is that it could be the move that finally thrusts Disney+ out of the red. CEO Bob Iger is hoping to turn Disney+ profitable by the end of fiscal 2024. This week's earnings report is a step in that direction, as the operating loss for the segment was cut in half from a year earlier. If Disney's 46 million domestic users were paying $3 more a month, that would offset more than 80% of the latest quarter's hole. However, it's never as easy as it seems.
It makes sense on paper, but no one knows what the long-term impact will be of the gutsy monetization moves at Disney's theme parks and now its fledgling streaming service. There are outlets for the thrifty, as long as they're patient. Disney+ subscribers can migrate to the cheaper ad-supported tier, joining the 3.3 million subscribers that aren't seeing an increase in October. Theme park enthusiasts can wait for discounted ticket promotional offers during lulls and wait exclusively in the longer standby lines to save some money.
The leading media stock is playing a dangerous game. It's a game that it can't afford to lose when its brand is at stake.
