Disney’s TV strategy is confusing in many ways. This week, we look at three issues: zombie subscribers, password-sharing curbs, and flexibility with traditional pay TV operators.
From the start, I’ve been tracking Disney’s shift to the direct-to-consumer model. But I must admit I’m frequently confused by the company’s strategy. Three moves by the company brought this into sharp focus over the last week or so. Today, I will look at each and explain why they are confusing.
Disney+ zombie subscribers (2:20)
What are Zombie subscribers? These are customers a service provider claims are paying subscribers but, in reality, have never used the service. Disney has been growing the roles of zombie subscribers in two ways:
- Through wholesale agreements with cable TV operators
- Selling bundles of Disney DTC services with aggressive discounts.
Wholesale zombies (3:00)
When Charter gave Spectrum customers access to Disney+ in January of this year, Disney immediately recognized all the Charter customers with access as subscribers whether they activated their Disney+ subscription or not. It turns out most did not. Lightshed partners estimate that as few as one in ten have activated their subscription. That means most Spectrum TV subscribers are inactive, zombie subscribers to Disney+!
Recognizing all Charter Spectrum customers as Disney+ subscribers could have helped Disney in another way. If the company associated some revenue with each Charter customer with access to Disney+, it would help move the service toward profitability faster. For example, if Disney associated $4 a month (Disney+ costs $8 monthly) with each Charter customer with access to Disney+, it would add $90-$100 million in revenue per quarter to Disney+’s earnings.
Of course, the details of how Disney is accounting for the Charter deal are not publicly available, so it is hard to tell if that is what the company is doing. However, Disney did trumpet that it reached direct-to-consumer profitability in the last quarter, one quarter earlier than forecast.
Bundle zombie subscribers (6:00)
However, there may be more Disney+ zombie subscribers because of how Disney accounts for bundle subscribers. One subscriber to the Disney Trio bundle is recognized as one subscriber to each constituent service, whether the subscriber has ever used the service! For example, the Disney Trio premium bundle of Disney+, Hulu, and ESPN+ costs $24.99 monthly. Hulu with no ads on its own costs $17.99, Disney+ with no ads is $13.99, and ESPN+ is $9.99. If you want two of the included services, it is cheaper to buy all three. How many people have the Trio bundle but have never used ESPN+? I bet a lot. Yet every single one is counted as an ESPN+ subscriber.
The Charter zombie Disney+ subscribers are very confusing since people typically equate subscriber numbers with the health of the service.
Some in the industry are accounting for subscribers with more clarity. For example, Paramount+ has stated that wholesale customers are not recognized as subscribers until they activate their Paramount+ account. Paramount also doesn’t credit them with any value until they activate.
Given this situation, is it really fair to compare a Disney+ subscriber to a Netflix or Paramount+ subscriber?
Password sharing curbs (9:40)
Disney says it will be taking on password sharers in the US starting next month. We know how to implement password-sharing curbs successfully: Netflix has written the playbook. It goes something like this:
- Give sharers a cheap plan to move to. Netflix introduced the ad-supported plan at $6.99 monthly well before it started going after people sharing a password
- Provide a migration tool, so sharers don’t lose their viewing profile data.
- Allow subscribers the option to cover other homes if they want to.
- Use viewing data to target groups of sharers. Customize the message, and pick off those most likely to subscribe.
Disney has stumbled at the first step. Rather than giving customers a cheap option to get them started, the company is hiking the price of its basic plan by 25% to $10 monthly on October 17th. It looks like it will allow paying members to add someone outside of the home; at least, it looks that way. The company updated its subscriber agreement in the UK, mentioning a new “Extra Member” feature.
Flexibility with traditional pay TV providers (12:40)
Disney’s long protracted battle with Charter ended with it caving into Charter’s key demands. It allowed Charter to bundle Disney+ basic with most of its cable TV packages, and it allowed Charter to exclude less popular channels (Baby TV, Disney Junior, Disney XD, Freeform, FXM, FXX, Nat Geo Wild, and Nat Geo Mundo) from the broader deal.
So, this led me to believe that Disney had finally seen the light and was prepared to be a lot more flexible with traditional pay TV providers. It makes a lot of sense for the company to do this. Even though cable TV is losing over 12% of subscribers yearly, Disney still makes far more money from TV channels than DTC. Cable TV remains a very profitable business, while DTC has just gone into the black. So, using Disney+ to support linear TV revenue streams is a good strategy, as it offers operators more flexibility in creating channel bundles.
That said, it’s déjà vu all over again with DirecTV. An industry insider close to the negotiations says the two are far apart, and barring a Hail Mary, DirecTV subs will lose access to all Disney channels on Sept 1st. What DirecTV is looking for is clear. Commenting on the Judge’s decision to allow an injunction against Venu Sports, the JV between Disney, Fox, and WB Discovery, Rob Thun, chief content officer, DirecTV said:
“Instead of allowing distributors like DirecTV to also develop smaller, more tailored packages at prices that reflect the value they get from the content, programmers have continued to impose and enforce strict bundling requirements through exorbitant minimum penetration rates – the minimum proportion of a distributor’s subscribers required to access a channel.”
So, it sounds like Mr. Thun is not getting the flexibility he is looking for from Disney.
Summing up
The three issues we’ve discussed leave me with the impression that Disney’s television strategy is wildly inconsistent.
