Source: PaxForex Premium Analytics Portal, Fundamental Insight
Walt Disney stunned the market with its Q2 earnings report. Not only did it beat Wall Street's top and bottom line forecasts, but it put the entertainment giant ahead of rival Netflix with a 14.4 million increase in new subscribers to its Disney+ streaming service.
This allows Disney to raise prices for Disney+ while introducing a new, cheaper, ad-supported version, as consumers have proven willing to pay for ads. But pricing is a tricky business, and while capitalizing on this trend may be a genius move, Disney could also be making a big mistake by pricing both products at a premium.
Disney now has 221.1 million subscribers to its various streaming services, compared to Netflix's 220.7. It was expected to add only 10 million new subscribers to its account, but a strong lineup of must-see programs has forced consumers to subscribe en masse. This came after viewers grew tired of Netflix's commitment to quantity over quality content and canceled their subscriptions to the channel in record numbers. Netflix lost nearly a million subscribers in Q2, the most in the company's history.
This could be part of general viewer fatigue, who now have a choice not only between Disney and Netflix but also between Amazon Prime Video, Apple TV+, Hulu, Tubi, Freevee, HBOMax, and Paramount+, Peacock, and others. According to industry analysts at Kantar, viewers are fed up and the growth of streaming has stopped.
According to the latest Entertainment on Demand Barometer report, 4.5 million consumers canceled their streaming subscriptions in Q2, pushing household penetration down to 85%. Consumers are reducing their subscriptions to a few, and among those with only one subscription, 69% choose Amazon Prime Video.
Of course, consumers aren't paying $149 a year for streaming video from Amazon, but for free shipping from an e-commerce site with movies and TV shows. That's why Disney+'s pricing plan is so important, and why its decisions here could be a big mistake.
Disney raised the monthly price for Disney+ from $7.99 to $10.99, a 38% increase. However, this is still a bargain compared to Netflix, which raised the monthly price of its most popular plan from $13.99 to $15.49 in January of this year.
While this increase in itself carries some risk, Disney's mistake is that it launched its new ad-supported service in December at the old price of $7.99 a month. There doesn't seem to be enough advantage between the ad-free service and the ad-supported service to justify consumers subscribing to the cheaper service. While that may be the plan -- subtly encouraging viewers to pay more to be able to watch without ads -- it undermines the premise and the promise of the whole thing.
Disney just did something similar with ESPN+, raising the subscription price for that sports streaming service from $6.99 to $9.99 a month, hoping viewers would simply decide to go the package deal route and add Disney+ and Hulu for an extra $4 a month. Nevertheless, the company could make more revenue if it made the service with ads really profitable.
The streaming video industry is certainly evolving. There was a time not too long ago when consumers tolerated advertising on terrestrial television because it was free, but ended up paying more for streaming services to avoid advertising.
Then, when providers started raising prices, they started offering free versions if you didn't mind watching ads. Now it's gotten to the point where viewers not only see ads but have to pay for the privilege.
Perhaps Disney is doing the smart thing, generating revenue from ads while charging its customers to see them. On the other hand, it seems like a big mistake because it is not convenient for viewers-a to move which could eventually lead to a decline in overall streaming subscribers over time.
As long as the price is above the 111.00 level, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 123.90
- Take Profit 1: 127.00
- Take Profit 2: 135.00
Alternative scenario:
If the 111.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 111.00
- Take Profit 1: 105.00
- Take Profit 2: 99.00
