#MediaNerd Monday: Disney+'s Path to Profits
#MediaNerd Monday: Disney+'s Path to Profits
Wakeup extra! A deep analysis of HULU as a template for its parent
It’s me again - Sean McNulty of The Wakeup. Yes, I know it's full daylight hours (no I don't sleep all afternoon. At least on Mondays).
I’m here with a new series starting today of occasional #MediaNerd🤓 Monday analyses.
Today: What HULU Revenue tells us about the $$ opportunity for DISNEY+… and why Chapek doubled down on STREAMING profitability in 2 years.
August is (theoretically) starting its end-of-month slowdown a bit… well, minus the movie theater business having an October 1987-ish Wall Street feel. So I’m bringing #medianerd🤓 back from the beach (he burns easily anyway 😳).
I gotta say a big takeaway from Q2 Earnings season personally was DISNEY’s re-commitment to no longer be losing money on Streaming by Fall 2024 (so… to be clear — that means, like, making money right Bob?).
Which, when you’re losing $1.1 Billion a quarter now, with plans to lose a similar number in Q3… alongside U.S. Streaming growth stagnating — it definitely triggered thoughts of:
So, with DISNEY revealing on its Q2 call that 2/3 of HULU’s subscribers take the Ad-Supported tier — I took that nugget as an opportunity to do an Earnings Report dive to see if that could indicate some sort of path for DISNEY+ and DISNEY STREAMING to indeed get out of the red. And turns out — I can see what Bob II sees. ish. 🔭.
With the new impending HULU, ESPN+ and DISNEY+ U.S. price increases, and launch of the U.S. DIS+ Ad-Supported tier (followed by Int’l / EUROPE in 2023), DISNEY’s stated path to STREAMING profitability (aka not losing money) by Fall 2024 actually has a feasible road map to add $1 Billion a quarter in Streaming Revenue say by about 12-15 months from now, to offset & surpass those current Billion dollar quarterly Streaming losses.
Now, the following has many assumptions, and there’s a good deal of info that I (and people not named Kareem Daniel) just do not have. For example — how many people take a DISNEY Bundle. Kareem would tell me if I emailed him though right?
PLUS THERE’S A LOTTA BIG IFs:
Churn doesn’t explode with the price increases
The U.S. and U.K. / EURO subscriber growth hasn’t truly dried up (or worse: the #s start meaningfully declining)
They get as warm a reception from Ad Buyers on DIS+ as expected
And of course other impossible to know detours along the way that could derail things I’m sure. But I mean — what fun would the Media business be without surprises? 😷
DISCLAIMER: Look this gets pretty nerdy even for me… so just a heads up.
NOTE: All numbers here are approximate, back-of-napkin math from numbers in the Q2 Earnings document.
And I’ll note as many caveats as I can along the way to keep in mind.
I’m also leaving out the HULU + LIVETV business and assuming that kinda breaks even for DISNEY, or if anything - is profitable for them/slightly helps offset any “Disney Streaming” division losses, and will remain relatively stable in the next 2 years.
I’m starting with the HULU numbers we know, and extrapolating from there. Ah the beauty of a U.S.-only service…
HULU CURRENT REVENUE PICTURE
Q2 Revenue: $1.63 Billion (42.2 Mil subs x $12.92 ARPU x 3 mos)
Q2 Subscribers: 42.2 Million
Ad-Free: 14 Million (1/3 of total), at $13 a month
Ad-Supported: 28.2 Million (2/3 of total), at $7 a month
CAVEAT: The following math ignores the lower #ARPU (avg revenue per subscriber) that HULU gets from the following:
“DISNEY Bundle” (DIS+/HULU/ESPN+ combo) customers
HULU subs who get HULU as part of a HULU + LIVE TV virtual cable bundle subscriptions, VERIZON bundles etc
HULU subs who signed up at low teaser rates
As well as any %’s DISNEY may pay out to App stores as part of deals there for subs thru the APPLE App store over time etc.
SO: This means HULU makes more $$ from Ad Revenue per subscriber than the number I will arrive at.
HULU subscriber-fee based Q2 Revenue:
HULU Ad-Free TOTAL = $546 Million (14 Mil subs x $13 x 3 mos)
HULU Ad-Supported TOTAL = $592 Million (28.2 Mil subs x $7 x 3 mos)
HULU Q2 Subscriber Fee Revenue TOTAL: $1.138 Billion
$1.63 Billion (total HULU Revenue) - $1.138 Billion (total subscriber fee revenue) = $492 Million difference
SO: HULU made a minimum of $492 Million of Ad Revenue in Q2 from 28.2 Million subscribers.
Meaning: