Yesterday, the Walt Disney Co. announced that it would soon be increasing prices for Disney+, Hulu, and ESPN+, and today the company revealed that its streaming business has turned a profit for the first time.
So if Disney is starting to turn a profit, why has it decided to raise prices again?
Disney says it “earned” price increases
Starting October 17, prices for ad-supported and ad-free subscriptions for Disney+, Hulu, and ESPN+ will increase by up to 25% depending on the plan (a breakdown of the price changes can be found here). The planned price increases follow price increases announced by the platforms in October 2023 and August 2022.
During Disney’s third-quarter 2024 earnings call today, CFO Hugh Johnston (transcript provided by The Motley Fool) said that Disney has earned the right to charge higher fees for its streaming services, pointing to the availability of current and upcoming content.
We feel we have earned that pricing in the market and are positive about it. With that comes economies of scale. With improved products, we should be able to reduce churn and retain consumers who are considering their options.
Chief Executive Bob Iger said Disney had increased its “pricing power” in streaming with upcoming features such as new live channels and movies.
Disney, like other streaming companies, is trying to shift its focus from subscriber growth to other factors like user engagement (the amount of time users spend on the service, which helps the companies’ advertising businesses) and profit margins, and could become more aggressive in moves that could lose some subscribers (more on this later).
Asked about customer backlash against recent price increases, Iger said:
No, our goal is to drive engagement on the platform, which means offering a wider variety of shows.
Disney says it didn’t lose many customers with previous price hikes.
Price increases across streaming platforms have prompted web subscribers to announce plans to cancel their subscriptions and encourage others to do the same, but Iger argued that “each time we have increased our prices, the resulting cancellations have been small and we do not consider them to be material.”
High churn rates are one of the biggest business challenges streaming companies currently face, but other reasons for high churn — such as subscribers watching their favorite content and then canceling until the platform adds new, compelling content — may be a more pressing issue for Disney than the frequent price hikes that are common among streaming services.
Iger also argued that Disney had not seen any significant backlash to its password-sharing crackdown, which it launched earlier this year and continued “in earnest” in September.
