Disney (DIS) faces an extremely competitive landscape as it prepares to launch its $7.99 Disney+ advertising tier in December, a month after Netflix (NFLX)’s highly anticipated debut.
Despite the slowdown in ad spending, analysts remain optimistic about the prospects for profitability of ad-supported services. However, investors will be watching Disney’s execution closely as the battle for ad dollars escalates.
“Disney weighs on the brand where there are higher expectations for the quality of the ad experience,” Eunice Shin, a partner at consultancy Prophet, told Yahoo Finance Live (video above). She explained that ad buyers “will have a very wide range of where to go and place their ads – it creates a very competitive marketplace.”
Disney stock began recovering Thursday amid a broader market rally, up more than 4% at the close. Shares slumped in after-hours trading Tuesday after the company reported fourth-quarter results that missed expectations across the board, except for net additions to subscribers. Those losses accelerated on Wednesday as investors focused on Disney’s flagging park revenue and mounting losses at the company’s streaming division.
Disney+, Hulu, and ESPN+ lost a combined $1.5 billion in the fourth quarter after losing $1.1 billion in the third quarter. Average revenue per user for Disney+ also disappointed and stood out $3.91 (vs. $4.29 estimate) on unfavorable currency effects and a larger subscriber mix.
Management said it expects streaming losses to shrink by about $200 million in the first quarter of 2023 and that Disney+ remains on track to become profitable in fiscal 2024.
(Courtesy: Disney/Marvel)
One way to achieve this goal is through advertising.
Shin noted that Disney’s biggest challenge will be creating an advertising experience that doesn’t create friction on the platform and helps differentiate it from the competition.
“How do you win in a compelling environment with a lot of competition and a lot of expectations?” stressed Shin. “Media buyers expect a return. You expect results. Disney+ and all these other streamers really need to deliver that.”
The story goes on
Kutgun Maral, an analyst at RBC Capital Markets, warned in an interview with Yahoo Finance Live that it will likely take some time for the ad tier to grow.
“It’s probably more of a back half of 2023 and more importantly 2024, some kind of event in terms of the uptrend we’re seeing from advertising,” he surmised, adding, “Part of the uptrend on this one.” ad-supported stage will depend, hopefully, an improved macro environment.”
Disney+ saw net subscribers increase to 12 million in the fourth quarter, beating expectations of just over 9 million. The blow came after the company reported an increase in subscribers (14.4 million) in the third quarter following new launches and a robust range of content.
The company warned that it expects core Disney+ subscriber growth and Indian service Hotstar’s subscriber numbers to be lower in the first quarter. Full year 2023 content spending is expected to be in the low $30 billion range.
Alexandra is a senior entertainment and media reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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