Disney promised investors in spring 2019 that a new video-streaming service would win between 60 million and 90 million subscribers by 2024. Disney+ has outperformed that forecast spectacularly, hitting its five-year subscriber target in just eight months. In doing so it is fulfilling the digital-transformation plan set in motion three years ago by Bob Iger, Disney’s long-time boss, now its executive chairman.
Marketing muscle, crucial to success, has been backed up by The Mandalorian, a space western inspired by Star Wars. Such is its popularity that Disney was late meeting demand for a plush toy of its baby Yoda character. The pandemic added a turbocharge, dashing fears that Disney+ and other new streaming services, like HBO Max and Apple tv+, might struggle to attract time-starved consumers. Lockdowns mean extra hours to while away, notes Tim Mulligan of MIDiA Research.
Amid school closures Disney+ has been as trusty a babysitter as baby Yoda’s nurse droid. Of all the new streaming services Disney+, which launched in western Europe in March, just as lockdowns began, is the clear winner. Even so it has not touched the leader, Netflix, which has 195 million subscribers worldwide and over 70 million in America alone.
Disney’s other businesses have suffered because of the pandemic. Shuttered theme parks, closed cinemas and cancelled sporting events have taken their toll. In August Disney said Covid-19 wiped out $3.5bn (£2.6bn) of operating profits at its parks, experiences and products division in three months. The company reported another quarterly loss, of $710m, on 12 November, after The Economist went to press. Yet the streaming service’s subscriber gains have helped shield the firm’s share price. It has fallen but by far less than its peers.
Disney+’s rapid success also underlines a doubt about the firm – whether Mr Iger’s choice of successor was correct. The favourite for the top job was Kevin Mayer, who designed and launched Disney+. Mr Iger chose Bob Chapek, a talented operating executive who had been running theme parks. “Given the runaway success of Disney+ it is even harder to understand how the theme park and home-entertainment executive got the top job,” says Rich Greenfield of LightShed Partners, a research firm. Mr Mayer left Disney this summer.
Will Mr Chapek now bet heavily on Disney+? The firm as a whole lavishes nearly $30bn a year on original and acquired content but this year set aside only $1bn for Disney+. Netflix spends $15bn a year. The Disney service’s rich library is enough to keep under-10s engaged but it may lose subscribers unless it regularly offers original grown-up fare. Third Point, an activist investor, wants Disney to stop its dividend and spend the $3bn a year on Disney+.
Disney could do more than that if it went “all-in” on streaming, dropping its current system in which, for example, big-budget films go exclusively to cinemas, and putting everything it makes onto Disney+ at once. The service could then spend as much as Netflix and raise its price from $6.99 per month to over $10.
This would make for a huge global business but there is a danger that it would swiftly cannibalise the existing parts of Disney’s empire. A more likely course is that Disney will move new content more rapidly onto Disney+. It could also combine Disney+ with Hulu, a separate and successful video-streaming service the firm took control of last year.
Disney is expected to announce in December that it will spend a lot more on content for the service. All eyes will be on whether Mr Chapek seems as tuned-in to streaming’s bright future as Mr Iger was.
© The Economist 2020
