Wall Street Expectations Present New Challenges For Disney+

_{Wall Street expects Disney+ to continuously add new subscribers, even as most of the folks who might sign up for Marvel, Star Wars and Pixar have already done so.}

Disney took a pretty sharp dive on Wall Street two weeks ago (for a 10% decline in 2021) on the news that Disney+ has earned “just” 2.1 million new subscribers in the previous quarter. Disney+ already has 118.1 million paying subscribers, 179 million if you include Hulu and ESPN+. That dwarfs the 40-57 million theoretical monthly subscribers under the most optimistic scenarios for (respectively) Apple TV, HBO Max, Peacock and Viacom (including Paramount+ and Showtime). Sure, Amazon claims 175 million households streamed Prime Video content in the last year, but last I checked subscribing to Disney+ doesn’t come with free shipping on your Amazon Christmas list. The issue isn’t that Disney+ isn’t being paid for and consumed by a large number of subscribers. The issue is that it’s expected to continuing growing despite the obvious potential for a plateau.

Disney is partially a victim of its own initial out-of-the-gate success. The pre-launch expectations were 60-90 million subscribers by 2024. Disney+ notched an incredible 86 million subscribers from November 2019 to October 2020. Now, to be fair, families worldwide spent much of 2020 mostly in lockdown due to a global pandemic, and (for those territories participating) the $7-a-month streaming platform filled with Marvel movies, Disney toons, and Disney Channel television shows looked like exactly the kind of “how to entertain your kids all day when they aren’t in school” option for frustrated families. Disney immediately took advantage (in a non-evil way) of the mid-March 2020 chaos, releasing Frozen II onto the platform much earlier than intended and selling it as a gift to socially-distanced families. That also distracted from the global theatrical failure of Pixar’s Onward just weeks earlier.

Crossing the 100 million milestone in the first 16 months also meant increased expectations for long-range forecasts, with the new “target” being not 60-90 million but 230-260 million by 2024. With the obvious caveat that Disney+ isn’t yet available in every nation on Earth and may not be for a while, the new normal has set in. As frankly feared, the vast majority of “got to see” Disney+ content is exactly what you’d expect it to be, namely the theatrical Disney toons (including the was-supposed-to-be-in-theaters Pixar flick Luca which was an absolute ratings monster through the second half of 2021) and the near-weekly diet of Star Wars and Marvel Cinematic Universe “content.” Correction: The two seasons of The Mandalorian and the near-weekly run of live-action MCU shows, all due respect to What If? and Star Wars: Visions.

That’s not to say the other Disney+ originals are bad. I’m not exactly the target audience, but I will happily admit that the likes of Big Shot, Turner and Hooch, High School Musical: The Musical The Series are polished, well-made, well-cast and at-worst surface-level entertaining “original” television programming. However, while the pandemic led to a first year of “big” Disney movies (of varying quality) like Timmy Failure, Hamilton, Artemis Fowl, The One and Only Ivan and Magic Camp ending up as Disney+ originals, along with the Premier Access debut of Mulan and the Christmas Day premiere of Soul, the “intended for Disney+” original movies have  mostly been inspirational sports and music-specific biopics and not-so-classic revamps like Home Sweet Home Alone. More importantly, to the best we can tell, none of these items have become ratings monsters.

Olivia Rodrigo became the new queen of pop music partially via romantic melodrama which apparently involved her Disney+ series co-star Joshua Bassett (after which he dated former Disney Channel star Sabrina Carpenter). However, High School Musical The Musical The Series didn’t become a much-watched pop culture juggernaut. Alas, there has been little cross-platform attention in terms of going viral online and then having your newest movie or show actually getting watched by the general public. Random example, but very few people who obsessed about Tom Hanks’ “David S. Pumpkin” Saturday Night Live sketch in October of 2016 actually went to see Inferno in a theater. This isn’t 2005, where global moviegoers would obsess about whether Angelina Jolie broke up Brad Pitt and Jennifer Aniston and then spend $487 million on Mr. and Mrs. Smith in theaters.

Disney+ is a subscription-driven service so it barely matters what subscribers watch as long as they keep paying the monthly bill. Moreover, the deluge of new MCU (Hawkeye, She-Hulk, Moon Knight, etc.) and Lucasfilm (Willow, Obi-Wan, The Book of Boba Fett, etc.) shows will absolutely help with subscriber retention. If Bob Chapek looks at the theatrical box office for Encanto ($57 million domestic in 12 days, or just barely more than The Good Dinosaur earned in its Wed-Sun debut) and sends Pixar’s Turning Red to Disney+ as was done with Soul and Luca, those who were convinced to sign up for the Pixar movies will merely continuing paying. However, the Disney stock dive from mid-November seems to imply that, so sayeth Wall Street, subscriber retention isn’t good enough and they expect the subscriber numbers to eternally swerve upward.

This mindset from Wall Street arguably discounts the aggressive over-performance from Disney+’s first pandemic-infused year. Alas, consumers interested in Marvel shows, Star Wars content, Pixar flicks, existing Disney movies and endless Simpsons episodes have almost certainly already signed up. Adding even more new MCU shows and/or making Pixar a Disney+-specific brand will help with retention, but not with adding new subscribers in already-existing markets. The question is if anything actually exists within the Disney brand that would attract new subscribers who don’t already pay for the service. Yes, lots of folks signed up in July 2020 to watch Hamilton, but 30% of those folks watched the movie they wanted to see and canceled within a month. Ditto, I might presume, any theoretical upswing in subscribers who signed up for Peter Jackson’s documentary The Beatles: Get Back.

Unless you’re an already converted Disney fan, you have young kids and/or you need to consume every bit of MCU content, you’re probably not signing up for Disney+ or you already did. There are solutions, like buying out 100% of Hulu from minority shareholder Comcast and more aggressively selling that as Disney’s adult-skewing streaming platform. I’m guessing will eventually happen. For now the dilemma is a Disney empire focusing on Disney+ while being unable to attract new subscribers for whom Disney+ is mostly considered kiddie fare. After all, it’s not like Disney can chase the next Game of Thrones, The Boys or Squid Game, and it’s not like Disney+ can recommend viewers wrapping up Black Widow switch over to Hulu and check out The Handmaid’s Tale.

The key while this is sorted out is to not pin the entire financial future of Walt Disney on an $8-a-month streaming platform. Streaming, which is supposed to be the great disruptor to theatrical moviegoing, remains dependent upon theatrical movies past and present for content and buzz. Mulan was a huge deal because it was supposed to be a theatrical global blockbuster. Otherwise, it’s just Lady and the Tramp. Pixar is huge because their previous global theatrical successes. Marvel shows are big because the Marvel movies are/were so damn popular, and The Mandalorian is only a smash because Disney bought Lucasfilm and revived Star Wars as a theatrical juggernaut. It’s the very “once was theatrical” nature of even the biggest Netflix originals (like, yes, Red Notice) that makes them seem like forbidden fruit when viewed at home.

The short-term solution isn’t throwing even more “was supposed to be theatrical” content into the Disney+ mill, or even to deemphasize the theatrical component in favor of the post-theatrical streaming launch (as I’d argue was done with Encanto). I’m sure oodles of subscribers who skipped Eternals and Encanto in theaters will catch up with them on streaming, but those will be subscribers who already signed up for the A-level Disney brands. The long-term solution is to get full control of Hulu and make that into Disney’s adult-skewing service, with obvious age-specific settings so it doesn’t recommend your toddler watch The Fly on Hulu after a Doc McStuffins Disney+ marathon. It’s not an existential threat, but it could become one if Disney sees fit to burn down its existing revenue pipelines chasing Disney+ subscribers that would rather watch Hocus Pocus.