Walt Disney Co. Chief Executive Bob Iger wants the company’s streaming business to be more like Netflix, but he may further ruin it in his pursuit.
The company announced a new round of price hikes alongside its earnings Wednesday, and they’re sizable: The price of commercial-free Disney+ will jump 27%, and while the price of ad-free Hulu will increase 20%.
These poorly timed price hikes — which the company telegraphed back in May — are hitting the business just as streamers are about to see their content options greatly weakened. Disney
DIS,
has been cutting costs throughout its operations, in part by removing streaming content, and now it faces ongoing Hollywood strikes that will delay fresh new movies and shows.
In other words, Disney+ and Hulu subscribers may be getting less for more when the price changes take effect this fall.
Streamers aren’t strangers to price hikes these days, and Iger explained that he really wants Disney’s streaming business to emulate that of rival Netflix Inc.
NFLX,
especially when it comes to profit margins.
“You know, our streaming business is still actually very young,” he said on the company’s earnings call Wednesday, noting that it was “not even four years old.”
Disney would “love to have the margins that Netflix has,” Iger said, but he also noted its streaming rival has had a head start. “They’ve accomplished those margins…over a substantially longer period of time and they’ve done so because they figured out how to really carefully balance their investment in programming with their pricing strategy and what they spend in-marketing,” he said.
Some of Disney’s moves are straight out of Netflix’s playbook. This spring, Netflix started cracking down on password-sharing as a way to boost revenue and increase subscribers, something that Iger said Disney is planning to do as well. Plus, Netflix raised prices in early 2022, prompting Disney to follow last summer, and then again with this latest batch.
Netflix, of course, is profitable, while Disney is targeting streaming profitability by the end of fiscal 2024.
Iger warned that his company is not anywhere close to getting its profit margins to Netflix’s levels. “I’m reasonably optimistic and hopeful that we will be improving our margins in this business significantly over the next few years, but I’m not going to make any further predictions than that except the good news is that we know how much work we have to do.”
How much streaming companies can turn price increases into profit drivers remains to be seen, however, since there is always risk that subscribers will balk at the higher cost and leave a service entirely. That’s especially true if the content offerings are going to deteriorate for consumers, which might be the case for Disney as the company deals with consequences from the strikes and its cost-cutting moves.
Disney+ subscribers fell by 7% in the latest quarter, though most of those declines came from India, where Disney lost the rights to a popular cricket league last year.
Disney, like many other companies, may look to augment its business through artificial intelligence, with Iger teasing that the company is seeking to improve its technology in a bid to grow engagement.
But as AI threatens to change the media industry — and many others — there’s another risk on Disney’s horizon. If studios don’t listen to demands of the striking writers who want to regulate the use of AI in scriptwriting, content is only going to become worse.
Read also: Streaming nirvana is about to become more expensive.