Why the price of Disney+ triggered a gasp in the room

Has Disney gone cheap? It's not a word that most parents bringing their kids to merchandise-stuffed theme parks would associate with the company.

And yet when Disney announced that its new Disney+ subscription video-on-demand (SVOD) platform would cost $6.99 (€6.20) a month in the US, one analyst present reported that the revelation triggered “a collective gasp in the room”.

Whether potential subscribers regard $6.99 a month (or the annual option of $69.99) as “cheap” or even affordable will be entirely subjective depending on their circumstances and their taste in entertainment. But one thing is surer than a princess flick with a happy ending – compared to the competition it is taking on, Disney is diving in low.

In the US, SVOD market leader Netflix has a basic price of $9.99 a month, rising to $12.99 for its most popular plan and $15.99 for its top-tier plan. Netflix only put these prices up recently, in a completely unsurprising move in light of its fervent content spending and extensive debt.

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It may be glad it did so, given any subsequent price rise would now be relentlessly compared to Disney's offer. Indeed, another round of price increases in Europe – where Netflix costs either €7.99, €10.99 or €13.99 – will likely land before Disney+ reaches this part of the world.

In some European markets, though not the Irish one, it has already lifted the medium and top tiers to €11.99 and €15.99.

There is a point – again, different for different people – where any subscription crosses from why-not territory to bank-statement burden to cancellation must. Netflix, which launched here in 2012 with a single €6.99-a-month product, has pricing power to burn. But any clues it drops on the subject of subscriber churn will still be pored over when it releases its quarterly results tonight.

Catch-up target

Disney has not chosen $6.99 specifically to thwart any future pricing strategy at Netflix. That’s just a bonus. And in one sense this is very much about Netflix and the target Disney has spied on its back. The SVOD revolutionary is out in front with 139 million worldwide subscribers – with a fresh count on that tally due later today – and as a relative latecomer, Disney doesn’t fancy wasting too much time catching up.

Disney is aiming for 60-90 million users by its 2024 financial year, says chief executive Bob Iger. It wants to compensate itself for the related loss of licensing revenue and then some. Making this ambition reality depends on two things: an attractive price and even more attractive content.

In less aggressive times, a decision to undercut the competition could be interpreted as a wavering of corporate faith in that content. Understandably, there’s not a shred of such doubts in evidence at Disney.

"We are confident this is a product people are going to sign up in droves to have," Iger told Bloomberg Television, while the company also casually reminded investors that in 2018, it sold 900 million cinema tickets – demand that it expected would "translate" to Disney+.

The timing of the rollout to Europe hasn't been confirmed, and the Twitter account for its kid-centred service, the €6.99-a-month DisneyLife UK and Ireland, is busy telling people that they will "continue to be able to enjoy DisneyLife for some time" and it will update them later on the "local availability" of Disney+.

But its US debut, scheduled for November 12th, comes in an incredibly massive year for Disney at the box office: Avengers: Endgame, Toy Story 4, The Lion King, Frozen 2, Star Wars IX are its upcoming Big Five, and it’s already banked $1 billion from Captain Marvel.

Frozen sequel

Of these, Frozen 2 may be the one to watch, not just literally, but for its catalyst potential. The original Frozen (“let it go, let it go...”) isn’t just the highest-grossing animated feature of all time, it is the biggest-selling DVD of this decade. Frozen’s DVD sales, mostly from 2014, were an icy spike in a fast-melting market. It made people with small sing-a-long-ing children shell out for a format that they had been getting out of the habit of buying.

Frozen 2 arrives into a world where Disney is seeking to accelerate a new business, not beat a declining trend. Once it cycles through the theatrical and pay-per-view windows, Frozen 2 will find its exclusive streaming home in Disney+, joining The Lion King and friends. Who would, on this basis, bet against Disney+ sparking some ferocious pester power in 2020?

Here comes what should by now be a standard disclaimer: not all streaming platforms are the same. Netflix taps into audiences that won’t be a priority for Disney and its many subsidiaries. Other SVOD services are available.

And maybe Disney is on some precarious low-balling mission with Disney+ and will struggle to turn the screw on wallets later. But when the analyst who described the "collective gasp in the room" at the $6.99 entry point, Michael Nathanson of New York research house Moffett Nathanson, says Disney+ "looks like a bargain compared to other entertainment options", it's hard not to conclude that this is game on.