Disney now has more streaming subscribers than Netflix, but Disney generates much lower subscription revenue

The headline count in Disney's quarterly results on Wednesday appeared to show a milestone: The Mouse House had 221.1 million total subscriptions worldwide across its streaming services. On this individual measure, that means Disney is now just ahead of Netflix, which ended the second quarter with 220.7 million total paid subscribers.

But the value of these subscriber bases is quite different.

At the national level, for example, Disney+ generated about 39% more revenue per subscriber than Netflix for the second calendar quarter, a measure called ARPU (average revenue per user) in the world of finance. And overseas, the contrast is even starker: Disney+ Hotstar, which is available in India and other Southeast Asian countries and accounts for 38% of Disney+'s overall customer base, recorded an ARPU of $1.20/month for the quarter ended July 2, while Netflix had an ARPU of $8.83/month for the Asia-Pacific region.

When Disney+ first launched in November 2019, it quickly amassed market share by pricing the streamer at the super low price of $6.99/month, nearly half the standard package from Netflix at the time.

But that low entry point means Disney's flagship streamer is making less money than Netflix, the historic category leader. For the three months ended July 2, Disney+ (US and Canada) domestic ARPU was $6.27 per month, down 5% from a year earlier, likely the result of a bias towards the Disney Bundle and the inclusion of Disney+ (and ESPN+) in the Hulu+ Live TV package. Compared to Netflix, which recorded an ARPU of $15.95 per month in the US/Canada region for the second quarter, up 10% due to higher prices.

Now Disney+ is trying to improve its profitability profile, as U.S. streaming subscriber growth has slowed not just for Disney+, but for nearly everyone in the industry: in the U.S. and Canada, Disney+ saw just 100,000 paid subscriptions last quarter, reaching 44.5 million.

Along with the earnings release, Disney announced a massive 38% price hike for the ad-free "premium" Disney+ version of the service, which will drop to $10.99/month on December 8, 2022, when the media company will introduce Disney+ Basic, an ad-supported tier that will be available at the previous price of $7.99/month.

This, of course, is designed to increase the ARPU of Disney+ with the combination of the price increase (offset by the inevitable resulting churn) and the ad-supported Disney+ Basic tier, which could produce higher ARPU if Mouse House can successfully monetize it at the high advertising rates announced by executives.

Disney expects Disney+ to reach profitability in fiscal year 2024 (which ends in September). Over the past quarter, the media conglomerate's streaming losses have spiked: Disney's direct-to-consumer revenue was $5.06 billion for the quarter, up 19% — but below Wall Street expectations of $5.2 billion, per FactSet. DTC segment operating loss increased to $1.06 billion from $293 million a year earlier.

"Because of this slowdown in new subscriber additions, we've seen many in the industry swing into a new wave of sobriety" - with a focus on the profitability of streaming, wrote Principal Analyst Michael Nathanson by MoffettNathanson, in an August 11 search. Remark. "We on Wall Street have taken notice. Gone are the sum-of-the-parts models using revenue multiples or even the EV/content spend metric. Going forward, we hope streamers will focus on returning on invested capital and free cash flow generation.”

Also note that while Disney expects "core of Disney+" growth to continue on its projected trajectory through 2024, the company has reduced its projections for Disney+ Hotstar during that timeframe in light of the loss of Indian Premier League cricketing rights. With the warning of a slowdown in India, Disney lowered the subscriber target for Disney+ in total to 215 million-245 million subscribers worldwide by the end of its 2024 fiscal year, from 230 million to 260 million before.