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Disney’s Next Act Should Be Rated ‘R’

Tara Lachapelle
·4 min read

(Bloomberg Opinion) -- Disney+ has three problems, and a mysterious video making its way around social media just solved them all.

The video (below) purports to be a leaked trailer for new content and features coming to Walt Disney Co.’s main streaming service. The company hasn’t commented, and in all likelihood it’s just an internet fake by a Disney fanatic with some video-editing skills. Even so, the video does put forward some bright ideas for Disney, such as adding a “Disney 18+” section for ages 18 and up, and perhaps even a “premiere access” subscription for new movies. Ignore the likely made-up dates and details here, but consider the broader takeaway:

It’s hard to overstate how much of a game-changer it would be for Disney+ if it made similar enhancements. The video — despite its obvious points of suspicion — has nevertheless gotten so much attention because it hints at what users want. Here are the problems these ideas could solve:

1. Disney+ doesn’t make money. It will eventually, but to get there it needs to persuade more people to sign up — and to pay more than $7 a month for the service. (Globally, average monthly revenue per subscriber was only $5.30 last quarter, excluding the Disney+ Hotstar service in India and Indonesia.) While the growth prospects of Disney+ made it a bright spot in the company’s latest results, on paper the streaming division — which also includes Hulu and ESPN+ — still lost $580 million. Disney+ is probably moving toward a price hike, but it should be structured in a way that makes users feel like they’re getting more value. Addressing the next two issues would do that.

2. The content is too family-oriented. The app’s focus on Pixar, Marvel, Star Wars, National Geographic and Disney animated classics limits its customer base to mostly kids and superfans. There isn’t any R-rated content on Disney+, and most subscribers probably need another streaming subscription to round out their TV-viewing needs. In comparison, Netflix Inc. has a bit of something for everyone, and its users could almost get by on Netflix alone. It’s not like the broader Disney empire doesn’t have grown-up content, though. Disney is home to popular ABC shows, such as “The Bachelor” and “Grey’s Anatomy,” and Fox films, such as “Deadpool” and “Bohemian Rhapsody.” Why not put that sort of content behind a parental wall to boost users and usage? The company could do better than calling it “Disney 18+,” one such reason that the viral video is suspect. In any case, appealing to more adults would bring a flood of new users willing to try out the service. And parents might just be inclined to pay more. Then again, Disney has said it is planning to launch an international general-entertainment product under the Star brand next year, which would seem to suggest that Disney+ is sticking with its roots. As for the future of Hulu? Unclear.

3. Users won’t pay $30 every time there’s a new movie. Disney needs to find a more practical way to put theatrical releases on Disney+. In September, when lots of movie theaters were still closed, the company debuted “Mulan” on the app for a $30 one-time fee in addition to the recurring $7 that subscribers are charged each month. A standard Netflix plan is only $14 a month in the U.S., and its big releases don’t cost anything extra. Of course, some Disney films — such as those under the Marvel and Star Wars umbrellas — should come at a premium. But a better way to do it would be to have a premium subscription tier that grants continued access to those films. Call it the “box office pass.” It would be a smart way to lock users into a higher-margin annual subscription, or even commit to three years upfront, which Disney+ was able to entice some early users to do before the service launched in 2019. The bad news: This would crush movie theaters, an industry buttressed by Disney’s blockbusters. But Disney needs to go where audiences are, which now is at home.

Streaming is the new center of gravity at the conglomerate, and so it’s time to fine tune its strategy. The company is set to host a virtual investor day on Dec. 10 to talk more about its plans. Even if the video isn’t a genuine leak, it’s a decent prediction.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.

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