DIS Up Big on Disney+

Disney had a big 10% pop today after they promoted aggressive pricing ($6.99 a month or $69 a year) on their Disney+ streaming service and made it clear they were all-in on launching a successful streaming service.

Disney has given producers approval to make a big-ticket “Star Wars” spinoff series that will bypass theaters and TV and go directly to the service. It is offering bonuses for the services of directors and showrunners to work on the offerings it thinks it needs to lure customers away from Netflix. And it has told its software developers to dial back other projects to make sure the service can handle millions of subscribers when it launches.

Of course the $71.3 billion acquisition of Fox already made the above statement clear, though somehow the market still needed some sort of reassurance after the failed DisneyLife experiment in the UK a few years ago.

The low pricing in particular really puts the screws to Netflix as Netflix is heavily debt fueled & announced their largest price rise in the history of the company in January. They’re regularly testing consumer elasticity, but consumer preferences may shift quickly given that their biggest competitor launching in November will now charge about half their rate for a competing service.

And that is a smart move on the pricing front because you can always raise prices later, but any lack of traction will kill the stock & any lowering of the price will be seen a desperate attempt to revive a failed experiment.

Plus they have other services they can bundle:

Disney will “likely” intro a discounted bundle of Disney+, ESPN+ and Hulu, Kevin Mayer, chairman of the company’s Direct-to-Consumer and International segment said Thursday — which will give the company additional levers to play with.

Their bundling options go far beyond what their direct competitors can offer:

With Disney Cruise Line vacations costing more than $5,000 for a family of four, Disney+ need have only a marginal impact on cross-selling its subscribers to blow away the isolated lifetime value of a Disney+ subscription. Disney will also be able to use Disney+ to directly sell film tickets (cutting out brokers such as Fandango), reduce the share of its vacation packages that are sold by travel agencies (which also take a large cut of revenues), grow its direct-to-consumer merchandise sales (v. selling through Amazon), reduce its marketing spend via on-platform advertising and user-interest level targeting, and so on.

Netflix is off about 4% today while Disney is up 10%.

The same thing happened with Zillow when they tested the ibuying market. Jim Cramer was convinced their new lines of business like the iBuying service wreaked of desperation & were unbecoming, but after they changed CEOs back to co-founder Richard Barton and promoted the narrative of the $20 billion opportunity ahead of them the stock jumped big.

Even if “only #1 players will survive” is capital talking its book to justify its own importance, that view is still seen as common knowledge today. In an era of network effects & many winner-take-most styled markets, being seen as doing a bit of this & a bit of that is seen as unfocused strategy destined to lose.

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