Wednesday, August 5, 2020, 11:02 AM ET|Posted by Will Richmond
Disney reported Q3 ’20 earnings yesterday, saying it now has over 100 million streaming subscribers globally (Disney+ with 60.5 million, up from 57.5 million at the end of the quarter, Hulu with 35.5 million and ESPN+ with 8.5 million). New Disney CEO Bob Chapek spoke enthusiastically on the earnings call about the role that direct-to-consumer streaming services are already having on the company and said it “plans to accelerate the push into the direct-to-consumer marketplace” which will be detailed further in an upcoming investor day.
A key component of the push will be the launch of an international DTC general entertainment service in 2021 using the Star brand that Disney inherited as part of its 21st Century Fox acquisition. The new streaming service will have owned content from ABC Studios, Fox Television, FX, Freeform, 20th Century Studios and Searchlight. It will also be closely promoted with Disney+ and leverage Disney+’s technology platform.
When Chapek was questioned about the new service, he made clear that Hulu is likely to remain a domestic-only brand, despite past statements by former CEO Bob Iger that Hulu would eventually go international. Chapek said Hulu “has no brand awareness outside the U.S. nor does Hulu have any content that’s been licensed to it internationally. So this gives us the ability to market this under the Disney umbrella and have synergies with our existing platform.”
Given the success of Netflix in expanding internationally, many thought that Hulu would follow this playbook. But now it appears Disney has reversed course and instead will segment Hulu as a domestic SVOD/AVOD brand and Star for international. Because a good portion of Hulu’s content is licensed, Disney would have faced an expensive and time-consuming task to gain rights on a country-by-country basis. In contrast, with Star only carrying Disney-owned content, it can move quicker. Disney cleared the way further by taking a $5 billion impairment charge for international channels it is closing, which carry content that will no doubt end up on Star.
No doubt another aspect to this decision is that Hulu’s business model is heavily ad-based whereas Disney+ is pure subscription. Disney clearly wants to pursue subscription only, internationally, at least for the foreseeable future. Disney is going to further test subscribers’ willingness to pay by offering “Mulan” at $30 for Disney+ subscribers only. Disney hasn’t talked about advertising as a revenue stream in OTT, and seems to be focused on emulating Netflix’s model rather than say, Peacock’s. Using Star lets Disney move ahead with a pure SVOD brand.
We’ll learn a lot more about Disney’s DTC plans at the investor day in the coming months. While many parts of the company are under duress from the pandemic, streaming has become the key growth catalyst and narrative. Disney is the most prominent example of a big media company pivoting from legacy distribution models to streaming/DTC.