Happy birthday, Baby Yoda! Okay, technically the one-year anniversary of the day America fell in love with the littlest Jedi (a.k.a. the premiere of The Mandalorian) isn’t until November 12. But the Disney+ Star Wars spinoff kicks off its second season tomorrow, which makes now a good time to check back in on how the Mouse House’s massive bet on direct-to-consumer streaming is faring.
Judging by one of the most important metrics of any streamer — number of subscribers — the verdict on Disney+’s first year was pretty much locked in by early last winter. Back in February, the platform had already signed up just shy of 30 million customers, blowing away even the most optimistic prelaunch projections. That’s not an exaggeration: This time last year, several major analysts were forecasting Disney+ wouldn’t even break the 20 million mark by the end of 2020; even after the strong February numbers, many still thought it would be lucky to crack 40 million subs by the time its first year wrapped. Instead, Disney+ in August reported more than 60 million paying customers, including international markets. The company achieved its goal of signing up 60 to 90 million subscribers by 2024 four years ahead of schedule. It was a stunning success.
We will get another update on Disney+ subscriber numbers next month. As good as the news has been to date, in theory, it’s possible Disney+ could backtrack. Before Disney+ launched, analyst Rich Greenfield of LightShed Partners argued that subscriber defections — what those in the industry call churn — could be a problem for the service after its initial honeymoon with consumers. “It is simply too easy to churn in a [direct-to-consumer] world,” he said. “Disney will need to give consumers reasons not to churn far more often, and we simply do not believe 8- to 9-month-old movies that have been in theaters and home video will be enough of a catalyst.”
Greenfield is a longtime bear when it comes to the Walt Disney Co.: Before Disney+ went live, he predicted it would end 2019 with just 2 million paying subscribers. To be sure, he quickly adjusted expectations, forecasting in January that the platform would have 50 million subs by the end of 2020. And despite previous concerns about churn, that probably isn’t an issue for the streamer right now. Indeed, Greenfield told me this week it is now possible Disney+ could have as many as 80 million subscribers, though he remains a bit of a skeptic on the service overall. He says a big chunk of the Disney+ subscriber growth — and upwards of 25 percent of all subs — can be chalked up to the company bundling Disney+ with its Hotstar platform in Asia. As a result, Greenfield says Disney is bringing in less than $1 per month for Disney+ in Asian markets such as India, dramatically reducing its revenue per subscriber versus Netflix. He also isn’t that impressed with the handful of theatrical titles the company has shifted to streaming during the pandemic. “Disney is failing to pivot,” Greenfield says. “They should be putting all their best content directly on Disney+, such as [Marvel’s] Black Widow and West Side Story — they have a unique window where the [theatrical] exhibitors cannot stop Disney from pivoting.”
I get Greenfield’s criticisms, though I think he is being too tough on Disney+. Even if some of its growth was juiced by aggressive pricing, the scale Disney+ has achieved in such a short time is pretty amazing. And while future gains will surely require (much) more original content, one of the big lessons of Disney+’s first year is that a library-centric strategy can absolutely work to build a big base of users. While the pandemic obviously helped speed up subscriber growth across multiple platforms — just look at Netflix’s early 2020 surge — Disney+ succeeded even though its 2020 slate was made up almost entirely of non-original programs. Other than The Mandalorian and a handful of other shows that debuted during its first weeks of operation (think High School Musical: The Musical: The Series and The World According to Jeff Goldblum), there has been very little this year in terms of content produced specifically for Disney+. Yes, the platform was able to get buzz (and probably some subscribers) by shifting a handful of movies from cineplexes to streaming, particularly with Hamilton over the summer. But the bottom line is Disney+ signed up tens of millions of subscribers, here and around the world, largely on the strength of the Disney name and catalogue. (And yes, fine, having a massive pop-culture hit out of the gate with The Mandalorian certainly helped — a lot.)
The library-driven early success of Disney+ doesn’t mean Netflix and HBO Max and Amazon Prime Video are wrong to spend billions competing against each other for big-budget original programming. Disney, in some ways, is a unicorn; its service targets a niche that is so huge it’s not really a niche at all: family entertainment. What’s more, the Mouse’s marketing machine is massive and very hard for most companies to match. (Apple comes close, with its access to hundreds of millions of consumers through its iPhone and other devices.) What Disney has done cannot be easily duplicated by other companies, at least not on the same scale. But I do believe its success suggests there is room in the market for something between smaller, super-niche services such as BritBox or Shudder and the slew of general-entertainment streamers now trying to take on Netflix. (It’s why I think Peacock and Paramount+ have a good chance of surprising over the next few years.)
What Year Two Looks Like
2021 should see a big expansion in tentpole originals at Disney+. There are multiple Marvel and Star Wars–related projects in various stages of production or development at the streamer along with several other series tied to Disney IP (Monsters, Inc., The Mighty Ducks, Doogie Howser, M.D., Willow, National Treasure). And as much as the Disney+ production pipeline was slowed by COVID-caused shutdowns, assuming projects are able to successfully film, the next 18 months will see the streamer’s slate packed with an overflow of big titles. It is also possible Disney decides to shift a few more midsize movies onto Disney+: Pixar’s Soul is already set for a Christmas Day release on the streamer.
The Disney synergy machine could also once again become a significant factor in driving growth next year. The company’s sprawling kingdom allows it to easily market Disney+ to its best customers, with promotions tied to its theme parks, theatrical releases, and even its annual D23 convention. All were contributing factors to the strong pre-COVID-era subscriber numbers for Disney+, but the pandemic closed off many of those marketing avenues for most of 2020. It’s silly at this point to predict when things will start getting back to anywhere close to normal, but if movie theaters and theme parks are operating at, say, 80 percent capacity by next summer, that could help Disney+ attract new subscribers and keep existing ones from canceling.
There are also some potential headwinds for year two. Most notably, lots of free trials and one-year advance subscriptions will expire in the coming weeks. While the return of Baby Yoda and next month’s WandaVision debut have been timed to make possible defectors think twice before canceling, it’s a given a certain percentage of customers will move on once they see $6.99 being deducted from their bank accounts. Plus, with no new stimulus checks in the mail and tens of millions of people who were employed a year ago now jobless, some families will decide they simply can’t afford to keep the service. On the other hand, Disney+ is one of the cheapest electronic babysitters around, and with even more kids still stuck at home all day, you could make the case that a pandemic economy helps Disney+ as much as it hurts it. It is also not hard to imagine some financially struggling families first choosing to ditch pricey cable bundles (or live-TV streaming services) before getting rid of the relatively inexpensive Disney+.
And then there is the behind-the-scenes drama at Disney+. Like just about every other major conglomerate, Disney has completely remodeled the exec structure of its streaming kingdom in recent months. Kevin Mayer, key to the launch of Disney+, is now long gone from the company, as is Agnes Chu, the top programming exec when the platform launched last year. Earlier this month, Disney CEO Bob Chapek whipped up a reorganization of senior distribution and creative execs with the stated goal of making streaming more central to the company, though how exactly it will change day-to-day operations, I’m still not entirely sure. (I’m not alone on this front.) I expect we’ll see even more Disney streaming changes in the months ahead, though if I had to bet, I’d say the shifts are more likely to impact Hulu or maybe even linear platforms such as ABC and Freeform. None of this is necessarily a bad thing, particularly for Disney+. These are probably the necessary aftershocks you’d expect from a radical reinvention of a company’s TV business. And it’s not like Netflix is exactly the picture of stability these days, either. But there are likely to be some more hiccups along the way in 2021 as the new Disney streaming team settles in.
The Long-Term Picture
Down the line, I am most interested in seeing how much further Disney chooses to integrate Disney+ with Hulu and its other TV holdings. The company already bundles the two platforms together (though only for folks who also want ESPN+), and by all accounts, the combination has been very successful at building audiences for both platforms. But in terms of content development, there has been very little crossover with linear networks such as ABC or Freeform. Yes, the Disney Family Singalong pandemic specials that aired on ABC earlier this year quickly found a streaming home on ABC (thanks to Disney+ agreeing to pitch in for the cost of production). That sort of synergy has so far been an exception, however.
Disney understandably wants to keep Disney+ very tightly focused on family-friendly programming, but why shouldn’t reruns of Black-ish or The Conners live on Disney+ in addition to Hulu? NBCUniversal is now moving to a model in which programming is developed to play across multiple networks and the Peacock streaming platform. Does Disney do something similar? And while I get the importance of making sure parents know that Disney+ is totally kid-safe, it seems counterproductive to force consumers who pay for the Disney bundle to switch between three apps to find content owned by the same company. I would think Disney would eventually want to figure out a way to let Disney+ content live both on Disney+ and a sort of supersized Hulu. After all, Hulu currently lets customers who pay for it unlock dozens of live-TV channels or premium networks, all of which stream in the same app as Hulu Originals. It seems illogical to draw digital borders between the various lands within the Disney streaming kingdom.
My prediction: Within the next two years, there will be far fewer walls between the Mouse House’s various linear and streaming platforms. Oh, and lots more Baby Yoda.