Disney+ Hotstar Is Key to Disney+ Subscriber Growth, But Won’t Realize the Profits Disney Wants
Disney’s quarterly results show one way to recruit a quarter of a billion subscribers: international expansion. But the furious growth of customers outside the United States is not so certain to bring windfall profits.
In markets like India, where Disney+ operates as Disney+ Hotstar, subscribers pay an average of 76 cents (about 60 rupees) per month. In the United States, customers pay an average of $6.32 (about 500 rupees).
Disney+ ended March with 138 million subscribers, up 7.9 million from the previous quarter. The service is set to launch in 42 countries this summer, a Disney source said, expanding its global reach to 106 countries.
It will produce around 500 shows in local languages across the world – including 100 in India – to attract subscribers in those markets.
But more than half of its quarterly subscriber gains came from Disney+ Hotstar in India, where the new season of the Twenty20 Indian Premier League cricket tournament drove growth. Disney+ Hotstar – available in four Asian markets outside India – now has more than 50.1 million paying subscribers.
Its stock fell 5.5% to a two-year low of $99.47 (about 7,700 rupees) in early trading on Thursday, after more than half a dozen analysts cut their target from share price.
Disney’s streaming earnings topped Wall Street estimates for flagship Disney+ video service, driven by popular new releases including Pixar’s Turning Red and Marvel’s Moon Knightbut rising programming and production costs did not impress some investors and analysts.
“The market is now concerned that the combination of these subscriber tips and rising costs to compete more broadly with non-Disney brands will result in less impressive steady-state business,” said analyst Michael Nathanson. Moffett Nathanson.
Disney Chief Financial Officer Christine McCarthy’s comment that second-half subscriber growth for Disney+ may not be materially higher than first-half earnings “will likely be of major concern to investors,” the company noted. Bank of America analyst Jessica Reif Ehrlich.
But Disney CEO Bob Chapek said Disney+ is on track to hit the company’s planned goal of 230 million to 260 million subscribers by September 2024.
Operating losses from the company’s streaming business, which also includes ESPN+ and Hulu, reached $877 million (around Rs 6,800 crore) in the quarter, triple the losses of it a year ago, reflecting higher programming and production spending.
Programming spending is expected to rise by more than $900 million (around Rs 7,000 crore) in the third quarter as the company invests more in original content and sports rights.
“We think great content is going to drive our subs, and those then large-scale subs will drive our bottom line,” Chapek said on the investor call. “So we don’t necessarily see them as counters. We see them as sort of consistent with the overall approach that we’ve laid out.”
Paolo Pescatore, an analyst at PP Foresight, predicted that Disney+ will continue to grow as it expands into new markets and offers compelling content to stream, such as the Oscar-winning animated film Encanto. But it may not be a financial success.
“It’s obvious there’s too much focus on net adds for all vendors,” Pescatore said. “Unfortunately, given the nature of streaming, there will be high levels of churn which will impact all providers. This will in turn affect revenue and bottom line.”
© Thomson Reuters 2022
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