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Disney Plus Land Grab: Analysts Up Subscriber Forecasts With Verizon Free-Giveaway Pact

Disney Plus is going to go bigger out of the gate than Wall Street expected, with the Mouse House’s huge deal with Verizon expected to bring in millions more subscribers to the service.

On Tuesday, Disney and Verizon announced that the telco will give Disney Plus free to new and existing wireless unlimited data customers, as well as new Fios broadband and 5G internet homes, for 12 months. The regular pricing is $6.99 per month.

That’s prompted analysts to revise their estimates upward for Disney Plus, which debuts Nov. 12 in the U.S. Citing the Verizon pact and other promotions, research firm MoffettNathanson now projects the subscription VOD service will hit 8 million customers worldwide at the end of 2019 and 18 million by the end of Disney’s fiscal year 2020. Previously, when Disney first revealed details of the SVOD service, the firm had projected 2 million Disney Plus subs at the end of 2019 and 10 million for 2020.

Overall, “We would argue that Disney’s content is among the most valuable in the world given its global reach and scale and these assets deserve a premium valuation,” analyst Michael Nathanson wrote in an Oct. 23 note.

The Verizon-Disney partnership “is another example of Disney’s advantages in its effort to gain scale in [direct-to-consumer] services in the ‘land grab’ phase of the market,” UBS Securities analyst John Hodulik wrote in a note to clients. “We continue to see [Disney] as best positioned to succeed in the increasingly crowded DTC market given scale in content production, international reach and differentiated IP.”

According to Ronan Dunne, CEO of Verizon Consumer Group, the telco has around 100 million total wireless subscribers, and of those about half — 50 million — are on unlimited plans.

However, that overall figure includes business accounts. Analysts estimate the Verizon wireless consumer subscriber base that would realistically be poised to go for the one-year-free Disney Plus offer to be much smaller: between 17 million and 18 million.

The potential reach of 17 million Disney Plus subs through Verizon suggests the service will top early estimates by analysts, per Hodulik. The analyst had been estimating 4 million U.S. subs for 2019 and around 8 million after the first year of launch.

The Verizon deal “de-risks the Disney+ subscriber story over the next 12 months while creating a more challenging environment for other [direct-to-consumer] players,” UBS analyst John Hodulik wrote in a research note.

By the the 12-month Verizon promos roll off, Disney Plus will have a “meaningful increase in content available” compared to the November launch, Hodulik noted, including over 35 originals and over a year of film titles in the pay-TV window including “Avengers: Endgame,” “Aladdin,” “Toy Story 4,” “The Lion King,” “Frozen 2” and “Star Wars: The Rise of Skywalker.”

The financial details of the Disney-Verizon deal weren’t disclosed. Analysts assume Verizon is receiving a wholesale discount from Disney off the $70 per year (around $5.83/month) retail price. UBS’s Hodulik said Verizon’s cost is likely less than $1 per month per total postpaid sub. “We see this move as the latest of Verizon’s recent moves focusing on market share gains,” he commented.

MoffettNathanson puts the Verizon wireless customer base eligible for the Disney Plus deal at 17.7
million. Assuming that even just 50% will opt-in for the offer, that means Disney Plus could have just under 9 million U.S. subscribers in the first year from Verizon alone.

Nathanson added that his subscriber outlook for Disney Plus remains relatively conservative for two reasons: the X factor of how many people will cancel after the “initial binge viewing of the new original content” and a lack of concrete details around some future international launch dates.

At its investor day in April, Disney outlined subscriber targets for each of its direct-to-consumer services for fiscal year 2024: It projected 60 million-90 million for Disney Plus; 40 million-60 million for Hulu; and 8 million-12 million for ESPN Plus. Since then, Disney has taken full control of Hulu — and the company has announced plans to bundle all three services for $12.99 per month, suggesting even more upside to Disney’s DTC story.

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