Here’s Why You May Pay Less for Disney+ In a Few Months

Would you pay less to watch Disney+ if it meant that you watched ads during the show?

Disney believes the answer is yes, and it’s prepared to kill Hulu if necessary to add more subscribers to Disney+.

Disney

Source: Disney

Let me explain why Hulu+ might die sooner than you think.

Disney+ Is Adding Ads

Okay, I got cutesy with the headline there, but don’t misunderstand me.

DisneyPlus

Image: Disney Plus

If you’re currently paying for Disney+, you aren’t getting ads in your programming anytime soon, if ever. It’ll be entirely up to you.

So, that’s not what this headline references. Instead, Disney+ with ads is an offering coming later this year. Disney just confirmed this fact.

DisneyPlus

Photo: Chesnot/Getty Images

For reasons I’m about to explain, Disney intends to drop Hulu+ at some point.

That could be in 2022 or 2025. We don’t know when, but it’s happening. That part isn’t official yet, but it’s a logical conclusion.

As Disney plans for that eventuality, it’s introducing a new option for people who don’t currently subscribe to Disney+.

This ad-supported tier of Disney+ will follow the strategy of other services, including Hulu+, Paramount+, and Peacock.

Disney+ subscribers

Image Credit: Disney

The idea is that some people don’t want to spend a fortune on a streaming service. So even the current modest Disney+ price of $7.99 may keep some from subscribing.

Such customers would consider using Disney+ for a smaller fee in exchange for watching commercials, though.

disney plus

Photo: Shuttershock

Let’s say that your choices are Disney+ for $7.99 without ads or Disney+ for $3.99 with ads. Which would you pick?

By adding this new tier of service, Disney creates another path for increased subscriber numbers. That’s great news for its Wall Street reputation.

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Photo Credit: AP Photo/Richard Drew, File

However, that’s not the essential purpose of this move. It’s money…and I don’t mean the stock price (for once).

Disney Streaming Revenue by the Numbers

Here’s a mind-boggling set of numbers. Disney earns $4.41 for every paying customer of Disney+.

Disney money

Most of these subscribers are paying $7.99 per month now. So, Disney’s profit margin is 55 percent of the monthly subscriber fee.

For ESPN+, a cheaper service, the revenue per subscriber jumps to $5.16. As a reminder, ESPN+ costs $6.99. So it’s a profit margin of nearly 74 percent!

Capernick Disney

Image Credit: ESPN

How is this service earning more per user despite the lower subscriber rate?

ESPN+ offers extremely profitable pay-per-view (PPV) events on the service. And that’s not even the impressive streaming service from Disney’s perspective.

Source: Walt Disney Company

People don’t realize what a cash cow that Hulu+ is. Its 42 million subscribers net Disney $12.75 each month for every $6.99/month and $12.99/month customer.

That’s a monthly profit (not revenue) of $535.5 million and a profit margin of either 98 percent or more than 182 percent, depending on which price we use.

Disney financials

The explanation stems from that advertising revenue, the money Disney gets from commercials.

Over the course of a year, we’re talking about nearly $6.5 billion in profits, which should make you wonder why Disney will eventually shut down Hulu.

Let me explain…

Verizon Disney+ Hulu bundle

Image Credit: Disney

Comcast vs Disney

Comcast, the owner of NBCUniversal, competes with Disney in the theme park industry via its Universal Studios division.

However, the two have worked together in the streaming industry for many years. NBCUniversal contributes its content to Hulu via a distribution agreement.

Comcast

Effectively, Hulu+ airs NBC’s programming the day after it debuts on television. But then, it stays on the Hulu service forever. Or, at least, it did.

NBC executives had set up this deal more than 15 years ago when they had no ambitions for a streaming service of their own.

Disney+

Recently, Comcast and Disney had a falling out for two reasons, one of which was financial.

Comcast technically still owns 33 percent of Hulu and will receive a check from Disney at some point for the rest.

DisneyHulu

Source: Disney

Comcast officials believe that Disney has intentionally depressed the value of Hulu by not expanding it internationally. And they’re right.

Disney has done this because Hulu doesn’t have any sort of international presence.

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Photo: THIERRY CHESNOT/GETTY IMAGES

Also, if Hulu grows larger, Disney must pay Comcast even more for its 33 percent. Why would Disney have any interest in doing that?

The two parties are currently in arbitration over this matter, which will likely go into Disney’s favor.

Disney Q1 2021 Financial

Image: The Walt Disney Company

Comcast apparently didn’t get anything in writing that forced Disney to maximize profit. They just assumed Disney would. oops

In the interim, NBCUniversal has debuted its own streaming service, Peacock. Unfortunately, it’s…off to a rough start with less than 10 million subscribers after more than 18 months.

Image Credit: Peacock

Comcast executives just decided to tear up the Hulu agreement, as is their right. Their hope is to boost Peacock’s subscriber numbers in the process.

Starting this case, NBCUniversal programming will air the day after broadcast on Peacock rather than Hulu. I should add that this was an expected move.

Peacock

Why Disney Will End Hulu

This decision liberates Disney to convert Hulu into Disney+ whenever it wants.

Also, Disney can create that ad-supported tier on Disney+ as well. And that’s where the real money is.

Verizon Disney+ Hulu bundle

Photo: Shuttershock

Pluto TV, which doesn’t even air its own programming, earned more than $1 billion in 2021. It did that entirely by licensing content from others.

Meanwhile, Hulu + Live TV, a skinny bundle service version of Hulu, netted $84.49 per customer during the most recent quarter.

hulu

Friends, this service costs $69.99. Ad-supported streaming revenue is incredibly lucrative.

A couple of years ago, I mentioned that Disney was ramping up its digital ad distribution system in anticipation of this very moment.

Source: bgr.com

One day soon, the entire MCU and Star Wars libraries will be available on Disney+. And you’ll be able to watch them for what was once the cost of a single Blockbuster rental.

Disney will happily make this trade because it’ll show ads during the movies and television programs.

Disney+ subscribers

At that point, Disney will have reinvented the underlying mechanics of its powerful cable television earnings model.

Oh, and Disney will have improved the system. It’ll be vertically integrated, with Disney providing content for its own streaming service.

DisneyPlus

Meanwhile, Disney will sell the right to advertise on Disney+ to other companies, which will pay a fortune for the privilege.

The Death of Hulu

When Disney fully commits to this strategy, Hulu+ will grow superfluous.

HuluPlus

This knowledge represents much of the reason why Daredevil, Jessica Jones, and the other former Netflix-Marvel programs will go to Disney+ instead of Hulu.

Disney is already starting to train its subscribers to look for the premier content on Disney+ rather than Hulu+.

Disney American Council Blind

Again, the latter service holds only a fractional footprint internationally. It’s almost exclusively an American entity.

As such, only a small portion of the world’s population watches it anyway.

Source: comicbook.com

One day soon, Disney will consolidate its three-pronged streaming strategy into two or possibly even one entity.

When that happens, Disney+ will likely surpass Netflix to become the preeminent streaming service in the entire world.

Feature Image: Chesnot/Getty Images

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