Disney to Significantly Raise Prices of Disney+, Hulu Streaming Services

Disney’s era of budget-priced streaming video packages and galloping subscriber growth has come to an end.

For the second time in about a year, Disney announced a round of major price increases to its streaming products, raising the cost of the ad-free versions of Disney+ and Hulu by more than 20% each. The company also vowed to crack down on password-sharing, an effort that streaming rival Netflix started in earnest earlier this year.

The moves, along with deep cuts announced early this year, are geared toward achieving profitability for Disney’s streaming segment by September 2024.

“Our streaming business is still actually very young,” Disney Chief Executive Bob Iger told investors during a conference call to discuss the company’s latest results. “Because we’re new at all of this,” he said, Disney still has to figure out how to properly balance pricing, cost savings and money spent on marketing.

The price increases and pledge to address account sharing come as the company earlier Wednesday said its streaming business lost far less money in the latest quarter than it did in previous periods, but reported that its flagship Disney+ streaming service lost domestic subscribers for the second quarter in a row.

The company also raised prices on its Hulu Live television packages and announced the launch of a new bundle known as the Duo Premium, which pairs Disney+ and Hulu without ads for $19.99 a month. Previously, the company had offered both services as stand-alone products, or bundled with ESPN+ for the same $19.99 price. The company plans to raise the price of the bundle including all three services to $24.99 a month.

Wednesday’s price increases, which take effect in October, mean that the monthly cost of the ad-free stand-alone version of Disney+ has doubled to $13.99 from its 2019 introductory price of $6.99. The price of Disney’s ad-free Hulu service will rise to $17.99 from $14.99, making it more expensive than the most popular ad-free version of Netflix or Warner Bros. Discovery’s Max streaming platform.

The cost of the ad-supported versions of Disney+ and Hulu won’t change in the U.S., Iger said. “Maintaining access to our content for as broad an audience as possible is top of mind for us,” he said.

The changes come as Disney struggles to pivot from its old model of distributing content in movie theaters, on network and cable television and through the sale of physical media to a streaming-first paradigm.

Since launching Disney+ in late 2019, the company has lost more than $10 billion in its direct-to-consumer segment, which also includes Hulu and ESPN+. And for much of the past year, Disney’s shares have traded below $100 as investors have grown impatient with media companies such as Disney that have spent heavily to acquire subscribers without giving priority to profit.

On Wednesday, the company reiterated its goal to have the streaming business break even by September of next year, a target Disney announced in late 2020, and said that a plan to restore its cash dividend, which was eliminated during the pandemic, by the end of 2023 was on track.

In March, Iger said that in its “zeal to grow global subs,” Disney had underpriced its streaming services and hinted that higher prices were coming. After the company in December launched its first-ever ad-supported tier for Disney+ and raised prices on the ad-free version by $3, the low level of cancellations indicated there was room to raise prices further without reducing demand, Iger said.

Earlier Wednesday, Disney reported that losses in its streaming business narrowed to $512 million in the third quarter from $1.06 billion in the year-earlier period.

The improvement is a sign that cost controls put in place by Iger are starting to show a positive effect: Wall Street analysts polled by FactSet had expected a quarterly loss of $758 million.

Overall, Disney’s revenue rose 3.8% to $22.3 billion, thanks in part to continued growth at the company’s parks business, while operating income remained flat at around $3.6 billion. Analysts surveyed by FactSet had projected revenue of $22.5 billion and operating income of $3.3 billion.

In a statement, Iger said Disney was on track to exceed the goal he laid out in February of cutting $5.5 billion from content and administrative budgets, and chalked up the results to efforts to restructure the company and improve efficiencies. Since the start of the year, Disney has eliminated thousands of jobs as part of an effort to reduce head count by 7,000.

On Wednesday, Iger said Disney’s movie studios would be “not just reducing the number of titles we release, but also the cost per title.”

Shares of Disney rose 2.7% in after-hours trading.

The company swung to a loss of $460 million from $1.41 billion a year earlier, mostly because of restructuring and impairment charges. Excluding certain items, Disney earned $1.03 per share outstanding, beating analyst expectations of 97 cents a share.

Disney+ had 146.1 million subscribers globally, 7.4% fewer than the 157.8 million it had in the previous quarter. The decline mostly came from India, where Disney last year lost the rights to stream a popular cricket league that had been a major driver of new sign-ups.

In the U.S. and Canada, Disney+ had 46 million subscribers, down from 46.3 million in the previous quarter. It marked the second time ever that the company saw Disney+ lose North American subscribers.

The company’s parks business generated $8.33 billion in revenue, a 13% increase from a year earlier. The company said growth at its international parks offset lower results domestically.

Disney’s troubled traditional television business continued its decline. The company’s so-called linear TV segment, which includes sports network ESPN, ABC and cable channels like FX, Freeform and the Disney Channel, saw operating income fall 23% to $1.89 billion, or about $100 million less than what analysts expected.

Once a reliable engine of profit for Disney, linear TV has seen its operating income plunge in recent years as more consumers cut the cable cord and switch to streaming video as their primary source of home entertainment.

Iger recently hired Kevin Mayer and Tom Staggs, both former top lieutenants to Iger, as consultants to advise him on the TV business.

Disney is exploring a menu of options for both ESPN and its other linear networks, which include ABC and cable channels such as Freeform and Disney Channel, people familiar with the matter said. Those options could include selling some networks or bringing on equity partners, or spinning some assets off into a new company. News of Mayer’s and Staggs’s advisory roles was earlier reported in Puck’s media newsletter.

In recent weeks, Iger has told associates that he wants to reduce Disney’s exposure to the declining cable-TV industry but would prefer to avoid a spinoff of ESPN, and instead attract strategic partners to raise capital and ease the pressure on the business, people who have spoken with him said.

Separately, Iger is trying to take full control of Hulu, the streaming service Disney owns in partnership with Comcast. A deadline that could force the sale of Comcast’s one-third stake to Disney is approaching in a few months, and the two companies have already had on-and-off discussions. Battle lines are being drawn over the fairest way to calculate Hulu’s value, setting the stage for a potential fight next year, people close to the discussions said.

Kevin Lansberry, Disney’s interim chief financial officer, said Wednesday that with $11.5 billion in cash on its balance sheet and $10.5 billion in debt instruments available, the company’s war chest is well-stocked to get the deal done.

“We’re very comfortable with our current liquidity position,” Lansberry said.

Iger also briefly addressed the continuing strikes by Hollywood writers and actors in Wednesday’s call and in a memo to staff. After saying last month that the strikes were “very disturbing to me” and calling the unions’ demands unrealistic and disruptive, Iger softened his tone and noted that the strikes had prompted Disney to cut this fiscal year’s spending on content from $30 billion to $27 billion.

“It is my fervent hope that we quickly find solutions to the issues that have kept us apart these past few months and I am personally committed to working to achieve this result,” he said.

Write to Robbie Whelan at [email protected]