Streaming inflation tests subscriber loyalty
ESPN+, Disney’s sports streaming service in the United States, has just announced a 43% subscription increase, indicating the industry’s difficult path to reconcile the soaring production costs – evidenced by the increase in sports broadcasting rights – with consumer income, increasingly compressed.
In Disney’s sports streaming, the value went from $6.99 to $9.99 monthly, an increase still insufficient to offset the higher costs. To get an idea of the impact of more expensive broadcasting rights, just look at Disney’s latest quarterly balance sheet. In the quarter ended in April, ESPN+ programming and production costs climbed 48%.
Among investors, the ESPN+ subscription adjustment resonated well and Disney shares rose nearly 2.6% in the early afternoon. The entertainment and media conglomerate is valued at US$169.9 billion on the stock exchange.
With a schedule that includes exclusive NFL games and documentaries such as the popular “Man in The Arena: Tom Brady”, ESPN+ has been betting on the ability of its catalog to make the adjustment without alienating consumers.
In recent times, Disney’s bet on streaming sports has been attracting the audience. The number of subscribers to the service reached 22.3 million in March, up 62% in 12 months, a Bloomberg report showed.
Still, the business loses money. Together, the conglomerate’s streaming services — which include Disney+, Hulu and ESPN+ — posted a loss of nearly $900 million in the quarter ended in April (the last reported).
The question now is about the ability of consumers to accept this price level. At Disney, the increase in ESPN+ streaming could be slightly circumvented with the Disney+, Hulu and ESPN+ combo subscription, which has not changed its price – the service costs $13.99 per month. With the readjustment in the exclusively sports service, Disney may leverage the combo.
As it tries to deal with the higher costs by passing it on to the consumer, rival Netflix is still taking the first steps to create a cheaper service with ads. Reed Hastings’ firm – which has also increased subscription prices this year in the US, Australia and Canada – this week announced an agreement with Microsoft to design a service with ads.
Building the Netflix product, however, will not be trivial. “It will likely be a long and difficult road to climb, and Netflix will face more skepticism from advertisers than it initially thought.”
In practice, resuming the growth rate of Nexflix’s subscriber base depends on the success of the new ad-based service. In the short term, the slowdown is difficult to circumvent. In a report released today, UBS reiterated that it estimated second-quarter losses from advertisers should even be 2 million (in line with the board’s signal).
The bank also works with a much lower growth rate in the second half of the year. The forecast is that in the third quarter, the number of net subscribers will increase by just 1.3 million. The previous estimate was 2.8 million, while the market consensus points to 1.9 million. Compared to last year, the slowdown is impressive. In the third quarter of 2021, the company had 4.4 million subscribers.
Source: Value Pipeline