Disney has a math problem as it strives to compete with Netflix, Wall Street analysts warn. Here's why Bob Iger is destined to make a $9 billion bet on Hulu anyway.
Disney and its peers responded by prioritizing profits over subscriber growth, raising prices and bidding on fewer new shows, moves that please Wall Street but risk hurting growth further.
Nispel praised Disney's three-part bundle since it has wide appeal and a"vastly better" churn, or cancellation rate, than its peers. "Strategically, DIS should keep Hulu," Cahall wrote."It's a strong asset for US general entertainment, which is a huge market in and of itself. We think the US TV marketplace is ~$200bn TAM" — or total addressable market.Disney's direct-to-consumer unit is dramatically under-earning, in Cahall's view.
A supercharged Disney+ with Hulu's content folded in would need to be priced competitively to appeal to customers without cannibalizing the revenue of Hulu as a standalone service. Currently, the ad versions of Hulu and Disney+ each cost $8 per month while ad-free Hulu and Disney+ cost $15 and $11, respectively. Getting both services with ads is now just $10 per month, while an ad-free version that includes ESPN+ is $20 per month.
"Our concern is that combining Hulu and Disney+ strategically disadvantages Hulu — or, put differently, I would say it under-monetizes the general entertainment assets, which then puts them at a competitive disadvantage," Morris told Insider. Iger would be wise to take a more measured approach in streaming by focusing on profitability for Disney+ over an all-out war with Netflix, Morris said, adding that trying to top that dominant streamer would require spending over $10 billion per year on original streaming content.
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