Last week, Disney posted its Q2 financial results, reporting a second consecutive dip in total subscriptions to Disney+ and its first-ever drop in domestic subscribers to the service (covering the US and Canada).
The news disappointed investors, with the company’s share price having dropped by over ten percent since the results were released. It also triggered a strategic rethink internally, as Disney announced plans to launch a combined app hosting content from both Disney+ and Hulu in one standalone app in the US.
However, while financial markets appear to be focused on strict subscription counts, the overall picture is a bit more complicated. With each set of financial results, Disney releases figures specifically relating to its direct-to-consumer segment (which encompasses all of its CTV apps: Disney+, ESPN+, and Hulu). A closer look at these numbers gives a better understanding of how Disney’s streaming unit is really faring.
Disney+ lost subscribers… or did it?
One of the headline figures from the results was the drop in total Disney+ subscribers, down from 161.8 million in the previous quarter to 157.8 million. The previous quarter itself was down from 164.2 million.
But this figure includes Disney+ Hotstar, a product originally launched in India which has begun rolling out in other smaller markets. While it carries the Disney+ brand, it’s quite a different product. Originally launched as just ‘Hotstar’ in 2015, five years before the launch of Disney+, Hotstar was launched by Indian media business Star India, whose parent company 21st Century Fox was bought by Disney in 2019. Notable differences include its wider catalogue, which includes live sports streaming and content from major third-party distributors, and its much cheaper price (the premium subscription tier costs around $3.60 per month compared to the $10.99 subscription fee in the US).
Disney+ Hotstar subscriptions fell by around 4.6 million compared with the previous quarter. Such a drop isn’t too surprising given that the service lost the rights to a big slice of premium content, including the Indian Premier League and content from HBO.
Not including Hotstar, total Disney+ subscriptions actually rose during the quarter, from 104.3 million to 104.9 million. While there was a 0.3 million drop domestically, subscriptions rose by 0.9 million in international markets.
ARPU on the rise
These shifts in subscriber numbers also need to be seen in the context of monthly average revenue per user (ARPU) in each market, and more specifically, changes in monthly ARPU in each market.
Thanks to its much lower price, ARPU for Disney+ Hotstar sat at $0.59 per month in the recent quarter. While ARPU has fluctuated over time, this is significantly lower than it has been in the past. Three quarters earlier, it hit an all-time high of $1.20 per month.
The average ARPU for any Disney+ subscriber is $4.44, meaning a Hotstar subscription is worth a lot less than a subscription in other markets for the regular Disney+ service. So while Disney won’t be happy about the fall in subscriber counts, the fact that the overall loss can be entirely accounted for by Hotstar softens the blow.
Meanwhile, in the US, the loss of approximately 300,000 subscribers coincides with a significant price hike for its ad-free service. Last December, Disney raised the price of its ad-free subscription from $7.99 per month to $10.99 per month, with the new ad-supported subscription tier costing $7.99.
This has helped drive a significant gain in ARPU in domestic markets, up to $7.14 per month from $5.95 in the previous quarter (sitting above a previous high of $6.81 during the third quarter of 2021). Plugging in the numbers, this means total domestic monthly revenues were around $330 million for the most recent quarter, a significant jump from $277 million in the previous quarter.
Rising ARPU will please Disney executives as the business looks to bring the D2C unit to profit. Overall operating losses were cut to $659 million in the recent quarter, down from $1.05 billion in the previous quarter.
Disney+’s ad tier doesn’t leap off the page
One of the major changes to hit this quarter was the launch of an ad-supported subscription tier for Disney+ in the US. The hope was that the new subscription tier would help encourage more subscriptions, bring in a new source of revenue, and boost ARPU (since a number of services, including Disney’s majority-owned Hulu, report higher ARPU for ad-supported subscriptions).
But looking at the numbers, the launch of the new tier doesn’t leap off the page. While it may have contributed to higher ARPU, the bulk of this increase is presumably due to the aforementioned price hike. Meanwhile, the total subscription count was down in domestic markets. Overall ad revenues (which cover all of Disney’s streaming services) were significantly down compared with the previous quarter, falling from $897 million to $750 million.
This fall obviously comes in the context of a tough TV ad market. Hulu and ESPN+ both include live TV, so they would have been affected by the wider trend of advertisers pulling back from TV.
Nonetheless, a fall in total ad revenues following the launch of a major new ad product will have been disappointing.
Hulu and ESPN+ continue their growth streaks
While a lot of focus tends to go towards Disney+, Hulu and ESPN+ both account for a substantial part of Disney’s overall streaming strategy. And while Disney+’s subscriber count stutters, both other services (which are only available domestically) continued to grow. ESPN+ subscribers rose from 24.9 million to 25.3 million, while Hulu subscribers rose from 48.0 million to 48.2 million.
In fact, both services have grown at a similar rate to Disney+, despite the fact that both launched earlier — much earlier, in Hulu’s case. Since its first quarter, Disney+ has grown from 25 million subscribers to 46.3 million, equivalent to 85 percent growth. Over the same period, ESPN+ and Hulu have grown from 6.6 million and 30.4 million subscribers, respectively, to their current levels. This marks 58 percent growth for Hulu and 283 percent growth for ESPN+.
