Prior to the pandemic (and even as recently as April), Netflix (NFLX) had occasionally begun to miss quarterly expectations when it came to subscriber growth in the U.S. and Canada. This domestic plateau was one of many reasons the streaming service aggressively emphasized its overseas expansion. Once a market becomes saturated, the viable alternative is to tap into underserved markets elsewhere. It’s an issue Disney (DIS)’s fledgling behemoth Disney+ may or may not be currently facing.
According to a recent report from The Information, which Disney has countered with claims of “factual inaccuracies,” Disney+ has surpassed 110 million total subscribers worldwide. However, the report also puts forth that the majority of new subs come from India (via Disney+ Hotstar), and that only 1 million new subscribers have been added in the U.S. since February. (We had known Disney+ growth was finally slowing worldwide as of Q2 this year.) If true, the concern lies with a key metric of the streaming wars: average revenue per user (ARPU).
The rollout of Disney+ Hotstar in India at a significantly lower price has lowered Disney+’s ARPU from $5.63 to $3.99 worldwide. Over time, this can be offset with incremental price increases, which can be implemented if Disney+ maintains a low churn rate (or the rate at which consumer cancel their subscriptions). Excluding Hotstar, Disney+ ARPU is $5.61. For comparison, Netflix’s ARPU in the U.S. and Canada is $14.25, per CNBC, while WarnerMedia’s HBO and HBO Max stand at $11.72.
In response to The Information’s report, Disney released a statement claiming “factual inaccuracies” that do not “reflect the performance of the service.” As of the company’s Q2 earnings report in May, Disney+ had accrued 103.6 million worldwide subscribers. The company’s next earnings report will come in August. The problem is that Disney not differentiate between Disney+ growth and Hotstar growth in its reports, nor does it provide region-specific growth figures. Disney, like many streamers, also does not reveal how many subscribers are on free trials.
Should The Information’s report be accurate, it might help explain why Disney has opted for hybrid releases of Marvel’s Black Widow and Dwayne Johnson’s Jungle Cruise following the successful box office debuts of theatrical-only films A Quiet Place Part II and F9 from rival studios. Black Widow and Jungle Cruise will both be made available in movie theaters and via Disney+ Premier Access for an additional $30 charge. The upcoming Beatles documentary, The Beatles: Get Back, will be a Disney+ exclusive. All together, it’s a strong push of high-profile content that will include a streaming availability component, perhaps to reignite engagement.
Earlier this year, Disney increased growth projections for Disney+ to 230-260 million by 2024 following explosive growth throughout the pandemic-assisted year of 2020 and introduced a $1 domestic price increase. Hotstar has proven to be a fast-growing option for Disney in India, where Netflix has long been eyeing upwards of 100 million new subscribers, though the downsides are clear. With a deluge of additional Marvel and Star Wars content coming exclusively to Disney+ in the near future, the streamer will have the franchise IP to continue to pique consumer interest.
But with its rollout of Star in European countries and Asia and upcoming August 31, 2021 rollout of Star+ in Latin America, Disney currently lacks an established local language library of originals (which it’s working on), an asset that has become one of Netflix’s mightiest strengths in the its ongoing quest for worldwide entertainment domination. This leaves Disney+ to ask: 1. if domestic growth is indeed slowing, how else can interest be jumpstarted and 2. can Disney+ thrive internationally via pricing value for consumes (i.e. India’s cheaper Hotstar option) without proven local language hits and a lower ARPU?
These are big questions with no simple answers.