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Disney’s streaming-service subscriber growth under microscope

Walt Disney Co. Chief Executive Bob Chapek put a spotlight on the company’s flagship streaming service, Disney+, ahead of fourth-quarter earnings when he warned investors that subscriber growth had slowed.

Disney will report its quarterly and fiscal year earnings on Wednesday after the stock market closes, but Mr. Chapek signaled in September that subscriber rates for Disney+ would be in the low single digits of millions. At the time of his remarks, analysts had been expecting 13 million new sign-ups for the quarter, according to FactSet.

Disney shares fell 4% that day following his comments and have trailed the broader market since then, a sign of how focused Wall Street has been on the company’s streaming strategy. When Covid-19 closed movie theaters and Disney theme parks, all attention turned to Disney+, then a months-old service that saw its popularity surge amid stay-at-home orders. The streaming service’s early success signaled a new chapter for Disney, one focused on direct-to-consumer efforts that allowed investors to value the company on growth, as they would a tech company.

Mr. Chapek said in September that projected growth from customers in India was below expectations following the delay of Indian Premier League cricket games that air on the service. Competitors like Netflix Inc. have also seen pandemic-level growth slow, as lockdowns ease and consumers find entertainment options outside of the home.

In general, Mr. Chapek said, investors should expect Disney+ growth to be more sporadic than the steady climb that the service’s early months showed. At Netflix, for instance, reports earlier this year of a slowdown in sign-ups were followed by a better-than-expected showing in the company’s most recent quarter. The streaming service added 4.4 million subscribers—or about a million more than it had forecast—in the most recent quarter on the strength of new popular shows like “Squid Game.”

Disney appears to be ramping up efforts to get Disney+ growth back on track. The company recently introduced a discounted offer for Disney+, a promotion that charges $1.99 for the first month, followed by the regular rate of $7.99. A promotional “Disney+ Day” is also scheduled for later this week to highlight new programming coming to the service as well as to commemorate its launch in several overseas markets.

The pandemic delayed production on streaming movies and TV shows at Disney and other services, limiting what viewers can expect to see in their queues for months to come.

In Disney’s case, the company pushed to Disney+ several would-be theatrical releases, such as “Hamilton” and “Soul,” to keep programming fresh. Recent hit shows like “WandaVision” and “The Falcon and the Winter Soldier,” both produced by Disney’s Marvel Studios, have kept viewers hooked but wrapped up their seasons earlier this year.

Analysts heading into the earnings on Wednesday didn’t appear flummoxed by the potential slowdown.

“We estimate that subscriber growth can rebound in the December quarter and beyond,” David Heger, an analyst at Edward Jones, wrote in a report.

Analysts polled by FactSet project a Disney+ subscriber count of about 126 million. That is a more bullish projection than what Mr. Chapek indicated, amounting to approximately 10 million more than the company said it had at the close of last quarter. ESPN+ subscribers are expected to inch up to more than 16 million, roughly 1.5 million more than the company’s last update in August. Total subscribers to Hulu are expected to exceed 45 million, an increase of about 3 million.

Companywide, analysts are expecting a quarterly earnings per share of 32 cents, according to FactSet, with net income of $730 million. Projected quarterly revenue is about $18.8 billion.

The fourth quarter was buoyed by the strong box-office performance of Disney’s Labor Day release, “Shang-Chi and the Legend of the Ten Rings,” as well as three months of reopened theme parks in the U.S. Pent-up demand for the parks has caused ticket sales to stay steady, and the division recently introduced new technological features that allow the company to charge visitors for perks.

After the strong performance of “Shang-Chi” in theaters, Disney announced that the rest of its 2021 movie slate would premiere on the big screen, rather than exclusively on Disney+ or through a hybrid model. The company’s most recent movie, “The Eternals,” topped the box office this past weekend, giving Disney three of the four highest-grossing debuts since the pandemic began.

 

This story has been published from a wire agency feed without modifications to the text

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