It’s been a whirlwind first 14 months for Disney (DIS)+ as the embryonic streaming service still in its relative infancy has already marched to 95 million global subscribers as of January 2. Naturally, the service’s unexpectedly explosive growth has drawn consistent comparisons to Netflix, the market-leading incumbent power in the streaming industry. If Disney+ is the hot shot rookie, Netflix (NFLX) is the championship veteran. But despite the former’s rapid surge in success, it still pales in comparison to the latter in one key category.
Before we get to that, let’s break down Disney’s burgeoning streaming empire to have a better grasp on its strengths and weaknesses. Per Cross Screen Media, which recently gathered this data in their must-have newsletter, Disney+ has enjoyed unprecedented quarterly gains in new subscribers ever since launching in November 2019.
2019-Q4 – 28.6M
2020-Q1 – 54.5M (↑91%)
2020-Q2 – 60.5M (↑11%)
2020-Q3 – 73.7M (↑22%)
2020-Q4 – 94.9M (↑29%)
Initially, Disney acquired Hulu to be its generalist streaming service as the company positioned Disney+ to be its specialist platform. Yet the latter shattered all internal and external exceptions, which has led Disney to adjust its streaming strategy on the fly. A planned international rollout for Hulu has been scrapped and the Mouse House has instead acquired services Hotstar and Star overseas.
Disney+ is now the company’s foundational building block. This is clear when reviewing the percentage of subscribers it has accrued among Disney’s total direct-to-consumer business, per Cross Screen Media and Variety. Overall, the company currently boasts 146.4 million subscribers across its three streaming services.
Disney+ – 94.9 million (65%)
Hulu – 39.4 million (27%)
ESPN+ – 12.1 million (8%)
Again, this is all extremely impressive. Disney’s entire streaming operation is within spitting distance of Netflix’s 200 million global subscribers while Disney+ is nearly halfway there on its own. But Netflix still holds the lead in the absolutely crucial Average Revenue Per User (ARPU) metric, which helps measure how much money a streamer is generating per user. While ARPU isn’t the defining measurement of the streaming industry, “it is important, like speed on a car dashboard,” Andrew Rosen, former Viacom digital media exec and founder of streaming newsletter PARQOR, told Observer.
Netflix’s most popular package runs users $13.99 per month while Disney currently charges $6.99 per month, but will be increasing its prices in March. That’s a 63% disparity in cost which contributes to the major gap in ARPU between the two titans. Netflix’s ARPU during the fourth quarter of 2020 was $10.80, according to Bloomberg, while Disney+’s sat at just $4.03, per LightShed Partners. In fact, Disney+’s ARPU has actually fallen every quarter since Q2 of last year. That trend is not what you would normally associate with a thriving business.
On paper, this looks like a disaster. But the reality is that Disney is more focused on expanding its global subscription base at the moment in order to get its IP in as many homes across the world as possible than it is on pure profit. (At Disney’s December Investor Day, leadership projected Disney+ would be profitable by 2024.) As part of that effort, Disney is aggressively expanding in India (long a growth target of Netflix) through its Hotstar Disney brand, which now accounts for 30% of Disney+ subscribers with an ARPU of around $1, per Cross Screen Media.
The inexpensive Hotstar offering is the reason for Disney’s ARPU decline, yet also a source of its rapid growth. In essence, Disney is trading short-term money in order to build a massive global customer base, which allows Netflix to generate considerably more revenue than its closest streaming rival. But when Disney executives feel as if its streaming product has hit a saturation point, it will begin to raise prices and close the gap with Netflix in raw revenue.
Let the battle commence.