Yahoo Finance Disney CEO Bob Iger says more price hikes coming to streaming services amid profitability push
Disney (DIS) CEO Bob Iger revealed that more price hikes will be coming to the company's streaming services.
"The pricing changes we've already implemented have proven successful, and we plan to set a higher price [for] our ad-free tier later this year to better reflect the value of our content offerings," Iger said during Wednesday's quarterly earnings call.
Disney currently offers ad-free options for Hulu and Disney+.
He added the company will "continue optimizing our pricing model to reward loyalty and reduce churn, to increase subscriber revenue for the premium ad-free tier and drive growth of subscribers who opt for the lower cost ad-supported option."
The company raised prices for Disney+ and introduced an ad-supported tier in Dec. 2022. That followed price increases for Hulu and ESPN+ earlier in the year.
The Disney+ price hikes led to a dip in subscriber growth in the company's fiscal second quarter, with the media giant reporting a loss of 4 million Disney+ subscribers, missing Wall Street consensus estimates.
Still, streaming losses narrowed to $659 million in the second quarter— above consensus estimates of $850 million — from a loss of $887 million in the year-ago period. The company reported a streaming loss of $1.1 billion in Q1 and a $1.5 billion loss in Q4
"We were pleasantly surprised that the loss of subs, due to what was a substantial increase in pricing for the non-ad-supported Disney+ product, was de minimis," Iger said. "It was some loss, but it was relatively small. That leads us to believe that we, in fact, have pricing elasticity."
Current Disney+ pricing stands at $7.99 for the ad tier and $10.99 for the ad-free version.
Iger, who stepped back into the CEO position in November, has remained hyper-focused on profitability as investors shift focus away from subscriber growth and put more emphasis on margins. The company's direct-to-consumer division, which includes Disney+, Hulu and ESPN+, shed a whopping $4 billion-plus in its fiscal 2022 ended Oct. 1, after it spent an estimated $33 billion on content last year.
Since that time, Iger has worked hard to establish new revenue streams like the ad-supported tier, in addition to those various price increases to help pare losses and lift key financial metrics like ARPU.
Domestic ARPU at Disney+ improved 20% sequentially to reach $7.14 in Q2 2022. The company reported domestic ARPU of $5.95 in the prior quarter.
Iger has consistently reaffirmed the company's outlook of reaching streaming profitability by the year 2024, although it will be a bumpy road ahead.
The company is currently in the midst of cutting 7,000 jobs by the summer in an effort to slash $5.5 billion worth of costs, including $3 billion in content costs. Disney said it plans to remove certain content from its streaming platforms and produce a lower volume of content.
'A tricky transition'
If the stock is any indication, Wall Street is skeptical about Disney's streaming future, though. Shares of the media giant fell more than 8% in early trading on Thursday following the loss in subscribers.
"Listening to last night, they're making changes but the effects of those changes still seem like a ways away," TD Cowen Managing Director Doug Cruetz told Yahoo Finance Live on Thursday. "There's progress, but it might be a little slow for some people."
The analyst, who reiterated his Market Perform rating and $94 price target, admitted Disney's strategy echoes that of others in the unprofitable streaming space: "We're going to make the product worse and charge more for it."
Overall, Disney still has "a tricky transition here to get from where they are now to getting to a point where the streaming services are really generating meaningful profit," Cruetz said.
Needham analyst Laura Martin wrote in a new note that although she believes — over the long-term — Disney "will be a winner in the streaming wars," she's advising her clients to remain on the sidelines until the company reaches peak streaming spending and sees further improvements in direct-to-consumer (DTC) losses.
Macquarie analyst Tim Nollen, who maintained his Outperform rating and $125 a share price target, added: "We believe Disney has the essential assets to successfully transition to streaming, but it’s a multi-faceted effort."
Wells Fargo analyst Steve Cahall agreed, surmising, "Investors are likely to remain neutral until DTC bottom-line visibility improves."
Disney shares are up a modest 3.5% year-to-date, lagging the S&P 500's 8% gain.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com
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