How Big Can Disney’s Direct -To-Consumer Division Get Post The Launch Of Disney+?

Walt Disney (NYSE: DIS) launched its streaming video service, Disney+, in November 2019, as it plans to take on up-and-coming streaming companies such as AT&T, Apple, and Comcast, and established players like Netflix and Amazon. The growth in Disney+ (based on the initial strong response) along with Hulu and Fox, is set to significantly boost revenue for the company’s direct-to-consumer division.

Takeaway

• Disney’s direct-to consumer business, which makes revenue by charging fees from distributors for delivering its channels, selling advertising space/time, and subscription fees charged for streaming services, is expected to contribute $16.5 billion to Disney’s 2020 revenues, making up 20% of Disney’s $81.4 billion in total revenues for 2020.
• This contribution is expected to go up to 23% by FY 2021, with the segment revenue touching $20 billion.
• Direct-to-consumer is set to be the fastest growing segment for Disney, with it providing $10.7 billion, i.e. 63% of the $17 billion in revenues that the company is expected to add over the next two years.
• With Hulu’s and Fox’s consolidation having helped the segment add over $6 billion in FY 2019, Disney+ is set to be the next big thing for the division as well as the company.
• Disney+, which was launched in November 2019, is alone set to help Disney add close to $4 billion to its revenue base over the next two years, on the back of increasing subscriber count.
• Direct to consumer division is projected to become the 3rd largest segment (from 4th position currently) for the company, with its share in total revenues likely to rise sharply from 13% in 2019 to 23% in 2021.
• The revenue growth expected due to Disney+ has been key to Disney’s 12% stock price appreciation in the last 3 months. We discuss Disney’s Valuation analysis in full, separately.

In our interactive dashboard How Does Disney Make Money?, we discuss Disney’s total revenue trends and expectations, along with segment-wise revenue analysis.

Estimating Disney+ Revenues

• Disney reported sign-ups of about 10 million over the first day of the Disney+ launch. As the service offers 1-week free trial, it is possible that not all users will become paying subscribers.
• We estimate that Disney+ could be adopted by 20% of U.S. households by 2020, with the number rising to close to 30% by 2021.
• This could translate in to a paying subscriber base of 26 million by 2020 and about 40 million by 2021.
• At an ARPU of $7 per month (current subscription fee of Disney+), Disney+ could garner revenues of $2.2 billion in 2020, growing further to $3.5 billion by 2021.
• Having a bullish outlook on Disney+ is also a reflection of Disney’s rich library of legacy content, affordable pricing, and some early partnerships – like with Verizon.
• To understand how streaming giants Netflix, Amazon and Hulu’s subscriber base currently looks, view our dashboard analysis.

Direct-to-consumer Revenues

• Disney’s direct-to-consumer revenues increased sharply from $3.1 billion in 2017 to $9.3 billion in 2019.
• Affiliate fees increased due to Fox’s consolidation, whereas advertising revenue grew due to higher advertising sales driven by consolidation of Hulu operations and at Disney’s international channels.
• Subscription revenue increased sharply as Hulu’s results were consolidated, further boosted by Fox’s international program sales, and higher subscription fees for ESPN+
• Thus, a strong pick-up in Disney+, coupled with increasing revenues from Hulu and ESPN+, is projected to drive direct-to-consumer division’s revenue to touch $20 billion by 2021, making it the company’s fastest growing division, with an expected revenue share of 23% in the next two years.

To understand on how all major operating divisions of Disney are expected to grow, view our interactive dashboard analysis.