- In a Sunday report, UBS raised the biggest questions it thought Disney had to answer at its investor day this week about its coming streaming service.
- They include cost and how much Disney plans to spend on original content.
- UBS analysts project the service to gain 5 million subscribers in the first year but have identified risks to those estimates.
Disney’s coming streaming platform, Disney Plus, is hotly anticipated, but little is known about the specifics of the service.
Disney Plus is expected to launch later this year, and Disney is developing original content for it, including "Star Wars" and Marvel shows. It also ended a licensing deal with Netflix this year, and all theatrically released Disney movies are expected to eventually land on Disney Plus, starting with "Captain Marvel."
But Disney has yet to reveal pricing or bundling options, among other important details.
In a report released Sunday, UBS raised what it considered the most important questions Disney must answer Thursday at its investor day.
The biggest are below:
- How fast will Disney Plus grow?
- How much will Disney Plus cost?
- How much will Disney spend on original content for Disney Plus?
- How much content licensing is being pulled from third parties and what is the pacing?
- How does Hulu fit into the DTC plans?
UBS projects Disney Plus will reach 5 million subscribers in its first year and 50 million in five years worldwide (Netflix currently has 60 million subscribers in the US and 139 million globally). But UBS also sees two major risks to its estimates.
Current licensing deals will limit the amount of content Disney has on the service at launch, notably classic "Star Wars" movies. Talks with Turner Broadcasting, which owns the TV rights to the movies, reportedly stalled in August, according to Bloomberg. UBS also cited "uncertainty around timing of international market launches" as a potential risk to its subscriber estimates.
UBS analysts predict Disney Plus to cost $6.99 a month at launch, would be "roughly the same as a single trip to the movie theatre."
"We believe Disney will set the price low to attract subscribers quickly in the U.S. and [the rest of the world] while built in growth in content available on the platform, through the film slate and expiring licensing deals, gives it the power to raise prices over time," the analysts said.
UBS also estimates that Disney will spend $800 million in its first year on original content.
"We expect the company to ramp production and have up to 10 movies & 10 TV series within the first year of launch for a total cost of ~$800M," UBS analysts said. "For TV series, press reports have indicated Disney is looking to spend roughly $2.5-3.5M per episode but could increase that budget for certain shows up to ~$10m/ep. We expect original movies will be modest in budget ($25-35M per film on average) relative to Disney’s films released theatrically."
UBS expects that all Disney and Fox content will "forgo third party licensing as it migrates to Disney+ or Hulu." But Disney’s Hulu plans remain one of the biggest questions the company has yet to address. After the Disney-Fox merger, Disney now owns 60% of the streaming service, and will likely pursue complete ownership.
"We believe Disney would like to own 100% of Hulu and see potential for Disney to announce the acquisition of AT&T’s 10% stake at the investor day," analysts said. "AT&T has signaled its intention to monetize the Hulu stake (which Disney valued at $1.5B in its recent 8K filing)."
Disney CEO Bob Iger addressed the potential for bundling Hulu, as well as ESPN Plus, with Disney Plus during an earnings call last year.
"If a consumer wants all three, ultimately, we see an opportunity to package them from a pricing perspective," Iger said. "But it could be that a consumer just wants sports or just wants family or just wants the Hulu offering, and we want to be able to offer that kind of flexibility to consumers."
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