Zhitong Financial APP learned that in 2017, it began to realize that its users are constantly moving from cable and radio to online video.$Walt Disney Company (DIS.US) $Opened the way for the layout of streaming media business. Today, Walt Disney Company has more than 220 million streaming subscribers, more than$Netflix Inc (NFLX.US) $Become the king of new streaming media in the United States. What did Walt Disney Company do right in the past five years?

Why did Walt Disney Company's streaming media subscribers soar?

It is understood that at the end of July, Netflix Inc announced that the number of subscribers in the second quarter was 220.7 million, a loss of about 970000 users compared with 221.6 million in the first quarter, although less than the company's expected loss of 2 million users in the previous quarter, but the number is also the largest user loss in a single quarter in its 25-year history.

Walt Disney Company, by contrast, saw the number of Disney+ subscribers grow 31 per cent year-on-year to 152.1 million in the third quarter, higher than market expectations of 148 million. With Hulu (46.2 million) and ESPN+ (22.8 million), Walt Disney Company currently has 221.1 million streaming subscribers, higher than Netflix Inc's 220.7 million streaming subscribers. But it is worth noting that almost all of the new users to Disney+ Q3 come from outside North America.

As shown above, Walt Disney Company's Disney+ had 14.4 million net new users in the third quarter, of which only 100000 came from the United States and Canada. Of the remaining net new users, about 8 million came from Southeast Asian markets such as India and Indonesia, and about 6 million from other countries, including 52 new markets that have opened Disney+ since May.

It is worth mentioning that Disney+ Hotstar is a regional service launched by Walt Disney Company for Southeast Asian markets, and its price is relatively low.

Thus it can be seen that Walt Disney Company's net new users increased rather than decreased in the current market environment in the third quarter, and the Southeast Asian market made a great contribution to it. But in fact, Disney+ did not rise on the ground in this market.

Earlier, Star India, which was also a subsidiary of Foss, came under the control of Walt Disney Company after Walt Disney Company bought most of 21st Century Foss's film and television assets for $71 billion. In India, Walt Disney Company merged Disney+, a video-on-demand product, with Hotstar to form Disney+Hotstar, bringing the latter's existing users directly into Disney+.

What does the birth of Disney+Hotstar mean?

It is understood that Hotstar was originally a service provided by local companies in India. According to statistics, the service has 300 million active users in India, of which 8 million pay subscribers. The service has three pillars to support its rise: working with Reliance Jio, the depth of local content and cricket content.

First, Reliance Jio is a telecom company owned by Reliance Industries, India's largest conglomerate. Jio sells Hotstar to users as an option for mobile phone packages, and its telecom service is the cheapest in the Indian market. Second, in terms of the depth of local content, Hotstar parent company Star India Media (Star India) has 60 TV channels, and the content and production resources provided by the company make it possible for local content to develop in depth, which is one of the reasons why a large amount of Bollywood content can appear exclusively on the platform.

Finally, the most important thing is the attraction of cricket content. Star India paid $2.5 billion in 2017 for five years of digital and television rights to India's most-watched sporting event, the Indian Cricket Premier League. During the seven-week World Cricket World Cup in 2019, it set a record of 300 million broadcasts on Hotstar. Now all this is directly inherited by Walt Disney Company, and they specifically emphasize that they will provide more cricket content in the future.

In addition, taking advantage of the Indian market, the first market for Disney+Hotstar to expand outward after the successful merger is Indonesia, the most important streaming market in Southeast Asia. As the fourth most populous country in the world, Indonesia, with the rapid development of the Internet, is also seen as the next important streaming market.

Generally speaking, although India and Southeast Asian markets may be the main battlefields for streaming media giants in the future, from the perspective of globalization, Walt Disney Company's model in the Indian market can hardly be copied to other regions, because there are almost no local small and medium-sized streaming media enterprises with certain competitiveness like Hotstar in the market. Therefore, it can be said that Walt Disney Company indirectly opened the Indian market for Disney+ by relying on the large acquisition of Foss in the 21st century.

At the same time, Walt Disney Company has also been hindered in continuing to expand the Indian market. In June, Walt Disney Company failed to renew the streaming rights of the Indian Cricket Super League. Prior to this, Walt Disney Company offered a price of US $6.2 billion for five years, and the average infield royalty during the contract period was as high as US $15 million, which was higher than that of the Premier League. In the end, all Walt Disney Company got was the right to broadcast on television, which was snatched by Viacom 18, a media joint venture owned by India's richest man, Ambani.

According to statistics, more than 1 of Disney+ 's 137.7 million subscribers live in India. Therefore, the loss of the rights to this crucial event will greatly reduce the attractiveness of Disney+ in the Indian market. In response, Walt Disney Company also lowered the user guidelines for Disney+ in fiscal year 2024 to 215 million to 245 million, compared with an expected 230 million to 260 million.

Will the period of growth in the streaming industry come to an end at all costs?

In addition to Walt Disney Company's vigorous development of emerging markets to help the growth of subscribers, relatively low prices have also enabled Walt Disney Company's streaming service to gain more users.

It is understood that Walt Disney Company announced in his third quarter financial report that starting from December 8 in the United States, the subscription price of Disney+ with advertising will rise to 7.99 US dollars per month, which is equal to the current subscription price of Disney+ without advertising. The price of Disney+ subscription without advertising will rise 38 percent to 10.99 US dollars, or 3 US dollars per month. But even after the price increase, compared with several mainstream streaming video services, the price of Disney+ can be said to be quite cheap.

For example, Netflix Inc, who is currently the most influential in the world, has a monthly fee of $9.99 for the basic version, $15.49 for the standard version, and even $19.99 for the most high-end membership services. The monthly fee for Global's HBO MAX is $14.99, and the monthly fee for Amazon.Com Inc's Prime member is also $14.99. At the same time, Disney+Hotstar also continues the previous low-price strategy of Hotstar, with two differentiated packages costing only 299 rupees and 399 rupees respectively.

But low prices also bring the possibility of losses. The streaming portion of Walt Disney Company's media and entertainment business, including Disney+,Hulu and ESPN+, lost a total of $1.1 billion in the third quarter, according to the financial report. According to the financial report, this is mainly due to the rising cost of content.

Thus it can be seen that the increase of subscribers does not solve the current situation of continuous loss of streaming media services. And the unfavorable increase in income is troubling not only Walt Disney Company, but also companies such as Netflix Inc and HBO. This also forced them to focus on advertising and monthly membership fees. Most streaming platforms from HBO Max to Netflix Inc to Disney+, have to bow to advertising to reduce the loss caused by the increase in content cost.

In addition, Walt Disney Company's announcement of a price increase also means that in this streaming war, the stage of growth at all costs seems to be over. It is understood that the average income of Walt Disney Company's Disney+ users in the United States and Canada also fell 5% this quarter as more and more customers adopted cheaper multiple products. The local market is usually the most profitable market for streaming media companies, so in the face of slowing user growth in the core local market, some streaming services are shifting their focus from increasing users to improving profits.

Michael Nathanson, an analyst at MoffettNathanson, pointed out that the major companies in the streaming industry have announced the latest results. In fact, the industry's growth is weak, and the low growth of the industry is "a clear sign that the streaming war has given way to the reality of financial markets".

Summary

On the whole, Walt Disney Company's third-quarter report did not disappoint investors, of which nothing is more striking than the substantial increase in revenue from theme parks. It is reported that Walt Disney Company's theme park, experience and derivatives revenue in the current quarter was $7.394 billion, up 70% from the same period last year. The department's operating results increased by $1.8 billion to $2.2 billion, compared with $400m in the previous quarter, mainly driven by domestic business units. Domestic business revenue surged by more than 100 per cent, while international business revenue increased by 50 per cent year-on-year.

In addition, Walt Disney Company achieved income of $21.504 billion in the third quarter, up 26% from the same period last year. Adjusted diluted earnings per share were $1.09, compared with $0.80 in the same period last year, and revenue in the first three quarters was $62.572 billion, up 28% from the same period last year.

After Walt Disney Company's third-quarter results were announced, a number of market analysts raised the target price of the stock, including investment bank Guggenheim Securities raised Walt Disney Company's rating from "neutral" to "buy" and the target price from $110to $145a.

Michael Morris, an analyst at the bank, said he was "more confident" that Walt Disney Company would keep the trend of his park business moving in the right direction and was confident of the effectiveness of price increases and cost controls in his direct consumer-oriented business. Morris believes Disney+ will be profitable in fiscal year 2024 and peak in loss in fiscal year 2022.