Walt Disney (NYSE:DIS) is increasing the prices of the ad-free versions of its streaming products, Disney+ and Hulu, by over 20% in an attempt to improve profitability. On Wednesday, Disney announced better-than-anticipated earnings for the third quarter of Fiscal 2023, thanks to its aggressive cost-cutting measures. However, revenue and subscriber numbers lagged expectations. DIS stock was up over 2% in Wednesday’s after-hours trading.
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It is interesting to note that Disney is optimistic about consumers paying higher prices for its streaming services despite the overhang of the ongoing Hollywood writers and actors strikes on its content pipeline.
Disney Hikes Streaming Prices
Disney is increasing the price of the core ad-free Disney+ by 27% to $13.99 per month, effective October 12, 2023. Further, the company is raising the price of its Hulu ad-free streaming offering by 20% to $17.99 per month. Comparatively, Netflix’s (NASDAQ:NFLX) standard ad-free plan costs $15.49 per month, while Warner Bros Discovery’s (NASDAQ:WBD) Max streaming platform is priced at $15.99 per month.
The company also bumped up the price of the bundled offering of no-ads Disney+, Hulu, and ESPN+ to $24.99 per month from $19.99. The price of the with-ads version of the bundled offering will also rise by $2 to $14.99 per month. It is worth noting that the company left the prices of the ad-supported versions of Disney+ and Hulu unchanged in the U.S.
Disney also announced price hikes for regular and ad-free versions of Hulu + Live TV service. Beginning September 6, the company is launching a Duo Premium without commercials Disney+ and Hulu plan at $19.88 per month.
The company also announced that it is launching the ad-supported Disney+ offering in select markets across Europe and in Canada from November 2023.
Efforts to Improve Streaming Business
Disney’s decision to hike the prices of its streaming services comes amid growing competition and the need to improve profitability. The company aims to turn its streaming business profitable in 2024. Disney’s streaming business posted a narrower loss of $512 million in Q3 FY23 compared to $1.06 billion in the prior-year quarter.
Regarding last year’s $3 hike in Disney+ monthly subscription price, CEO Robert Iger said during the Q3 earnings call, “We really didn’t see significant churn or loss of subs because of that, which was actually heartening.”
The CEO also explained that the company is trying to migrate subscribers toward its ad-supported plans by keeping their prices unchanged. Iger stated that as of the end of Q3 FY23, the company has added 3.3 million subscribers for its ad-supported Disney+ plan since its launch in December 2022. He highlighted that 40% of new Disney+ subscribers have chosen the ad-supported plan since its inception.
Like rival Netflix, the company also intends to crack the whip on password sharing next year.
Is Disney a Buy or Sell?
Reacting to the Fiscal Q3 print, Goldman Sachs analyst Brett Feldman said that while Disney reported mixed results, he expects a positive reaction in DIS stock due to early signs of progress in the management’s “lengthy to-do list.”
Feldman highlighted several advancements, including progress toward achieving direct-to-consumer (DTC) profitability by driving average revenue per user (ARPU) growth through price hikes and the adoption of the Disney+ ad-supported tier.
Wall Street has a Moderate Buy consensus rating on Disney based on 13 Buys, six Holds, and two Sells. The average price target of $115.11 implies 31.6% upside potential.
