Disney+ is overtaking Netflix but needs to adjust to a saturated market

It took Disney five years to overtake Netflix. The communications giant announced Wednesday night that it had added 221 million subscribers across all of its video-on-demand platforms (Disney+, Hulu and ESPN). Netflix, pioneer ofstream‘ said last month it had recruited a total of 220.7 million subscribers. It is an important symbolic victory, but one that hides costly challenges. In fact, Disney is revising down several growth targets, changing its pricing and offering.

The big bet announced by Bob Iger, head of Disney, in 2017 has succeeded: the switching of the audience of his films, series and television channels to his services in “streamtakes place roughly as the management of the company Burbank (California) imagines. The major threat that Netflix posed to the traditional distribution channels of its productions was effectively countered.

Saturation of the North American market

Disney+ added 14.4 million new subscribers last quarter, well above analysts’ forecasts. The transformation of Disney into a leader in the “streamis not yet financially viable. That activity caused the company to lose another $1.1 billion in its most recent quarter. Last year, the losses in the same period were only 293 million. However, the profitability target in 2024 is confirmed by the group’s finance director, who on Wednesday evening presented Disney’s performance from April to June.

As in the case of Netflix, the growth in video-on-demand is essentially international. There are increasing signs of saturation in the North American market, as other studios such as Warner Bros. Discovery, NBCUniversal and Paramount, for example, have decided to follow Disney’s strategy somewhat late.

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The latter thinks he has a sufficient catalog and essential franchises like “war of stars» and the superheroes of «Wonderto further develop the new Disney+ empire. However, it is clear that the costs associated with its international launch, as well as the congestion in the market, are complicating its strategy. Christine McCarthy, Disney’s chief financial officer, is being forced to revise down subscriber recruitment forecasts, which were validated this winter by Bob Chapek, the group’s boss and Bob Iger’s successor. Disney+ is now targeting between 215 and 245 million customers by September 2024. The target of 230 to 260 million was abandoned. The loss of the rights to broadcast football matches, which are very important for the Indian market, partly explains this adjustment.

Offer with advertising

Disney’s spending on new content is also being revised down for fiscal 2022. They will go down from $32 billion to $30 billion. Importantly, Disney+ prices are also changing as inflation forces millions of households to overhaul their entertainment budgets. On the one hand, the subscription to the service of “streamad-free will increase by 38% in December. It will fetch $10.99 per month in the US, which is still lower than Netflix’s equivalent offering. On the other hand, a new service with advertising is offered for $7.99. This last option is aimed at getting less well-off customers. Netflix, which is now working to launch a new, cheaper but partly ad-supported service, will have to adapt to this new configuration.

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Thankfully, Disney can once again rely on its theme parks to sustain its prosperity. The end of the pandemic and the return of crowds to Disneyland around the world have boosted results. Quarterly sales from this pole, the group’s most profitable, rose 26% to $21.5 billion. Profits from this activity, which Bob Chapek was responsible for before he was named number one, increased by 50% to $3.6 billion.

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