Despite Adding Record Number Of Paid Subscribers Disney+ Could Be Staring At A Big Challenge

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Disney+ is slowly heading towards a big challenge that experts believe could prove fatal for the OTT major.

The performance of both the leading OTT players for the first three months, between January and March 2021, is out now and there are some key performance indicators that tell us a lot about challenges and strategy.

Just as Netflix performed poorly in FY Q1 2021, ended March 2021, by adding less than 4 million paid streaming subscribers globally and making the overall count to 207.6 million, the situation with Disney is not so different either.

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Disney+ now has 103.6 million paid subscribers after adding 8.7 million during the same period. However, the number of Disney+ paid subscribers fell short of 109 million as estimated by analysts. This led to Disney’s shares experiencing a slump close to 4% in after-hours trading.

Now, as for the cause, both Disney and Netflix can easily explain the dampened growth by citing the surge in viewers during the onset of COVID-19.

The logic here is dead simple. Streaming companies such as Disney+ Hotstar and Netflix saw far too many sign-ups in the first six months of the pandemic – starting from March 2020 – than they had anticipated. Thus, given the surge, it is only natural that the growth will dive first and get pulled back to normalcy post the pandemic induced lockdowns.

But that’s not all. Both Disney+ and Netflix can also somewhat attest that their respective subscriber counts might accelerate in H2 2021 as production of highly anticipated movies, tv-series sequels, etc., resume and popular content pieces such as ‘Loki’ and ‘Luca’ come to the device screens.

But that being said, one significant difference between Disney+ and Netflix is that the latter’s average revenue per users (ARPU) is far more than Disney’s streaming offering.

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ARPU: The Key Metric Disney+ Ignoring

The current ARPU of Disney+ (including India’s Hotstar) is $3.99, whereas Netflix’s ARPU is hovering at $11.53.

A slumped growth can only be justified if customers of an OTT platform pay as much as they can afford! Disney’s other video-on-demand subscription service HULU has a higher average monthly revenue per paid subscriber, at $12.08. However, its growth is minuscule, 2% point from a year-ago period.

Hulu currently has only 37.8 subscribers (SVOD Only), which rises by another 3.8 million to 41.6 million when included those who also purchased live TV add-on.

Nonetheless, the low APRU red flag is not much of a concern for Disney’s Chief Executive Officer Bob Chapek, who noted that every market Disney+ has ventured into has exceeded their expectations in terms of global subscriber additions.

Moreover, he also pointed out that Disney is still expanding into new countries with Malaysia and Thailand within the next month.

Disney’s CEO, apparently, is not ready to reveal his game plan and has prioritised chasing subscribers only after a well-calculated risk assessment.

All in all, even though Disney+ is dealing with low APRU, one must remember that it was initially being pegged as a competitor for the likes of HBO Max, Peacock and other new emerging streaming services which, unlike Netflix and SonyLiv, have tagged their offerings at a highly competitive price.

But given Disney+’s success this year, it has catapulted into being compared with rivals such as Netflix in the big leagues of streaming war! The company has projected 230 million to 260 million subscribers by 2024, which Netflix has also estimated to reach by the same year. In such scenarios, Netflix will be in a better position with a greater ARPU with the same number of paid subscribers.

It would be interesting to see what strategy Disney+ will employ to strengthen its revenue book by increasing ARPU – which seems to be an uphill task once existing customers get used to enjoy services for a certain price.

We will keep you updated on all future developments. Until then, stay tuned.

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