The clouds hanging over the streaming landscape seemed to part a bit on Wednesday, when Disney announced another quarter of robust growth for its direct-to-consumer subscriber base. The patented “Disney Bundle” of Hulu, ESPN+ and Disney+ now boasts more than 205 million subscribers worldwide — within striking distance of Netflix’s 221 million.
Meanwhile, CEO Bob Chapek is still projecting confidence, saying he expects Disney+ alone to reach 230 million-260 million subscribers by the end of fiscal 2024 — up from 137.7 million currently.
But the streaming business remains in dicey territory, particularly where Wall Street is concerned, following Netflix’s catastrophic correction last month. Exhibit A: Despite Disney's subscriber gains, its stock fell after the Wednesday earnings call, likely due to the $887 million loss posted by its streaming unit (more than three times what the segment lost a year ago), as well as CFO Christine McCarthy’s comments that sub growth in the second half of the year “may not be as large” as the company previously anticipated.
It’s clear that investors are on the watch for a sector-wide streaming slowdown, and the months ahead are likely to see the industry reshaping itself as the Big Red N’s all-encompassing dominance starts to wane. With Netflix on the ropes, other companies will be assessing their priorities and rethinking their strategies, as it finally becomes clear to everyone that the model they’ve been chasing is not sustainable.
Case in point: Disney is cutting back on its planned content spend for this year, albeit by a mere $1 billion of its former $33 billion budget. Chapek’s remark on the earnings call that the Mouse House is “very carefully watching our content cost growth” echoed recent sentiments from Warner Bros. Discovery and Netflix executives — words that might not mean much for the immediate future ($32 billion is still a hefty spend, after all). Still, they signal the new wisdom in the streaming space: At some point, this business is going to have to be a profitable one.
On that front, Disney may have an easier road to walk than Netflix. McCarthy insists Disney+ will turn a profit by 2024, but even if it misses that target, the service has the advantage of a diversified conglomerate behind it. Despite its continued losses in streaming, Disney posted strong results overall for its Parks and Media and Entertainment divisions in its fiscal second quarter. Unlike Netflix, Disney has varied revenue streams that can prop up the company so long as it remains healthy.
There’s also the simple advantage of not having to defend your position on top of the mountain. After nearly a decade of ruling supreme in the streaming game, Netflix is learning what all traditional Hollywood studios already knew: You can’t stay on top forever.
The last two years have seen rivals chip away at the streamer’s dominant share of the DTC market, shrinking its former majority of demand for original content to 45 percent, according to Parrot Analytics data.
If content is still king, that could prove to be a crucial point as we settle into the looming recession and consumers consider which subscriptions are most worth keeping. Wells Fargo, for one, projects Disney+ will surpass Netflix’s share of the subscribing audience in 2024.
Still, Disney+ will be very closely watched in the months and years ahead as it guns for that top position on the streaming battlefield. Its continued growth should offer some reassurance that the SVOD bubble hasn’t burst yet, but all it takes is one bad quarter for the knives to turn on you. Just ask Netflix.