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Walt Disney (NYSE: DIS) revealed the details of its much-anticipated Disney+ streaming service at its investor day. After highlighting a few details about the growth of Hulu and ESPN+, its other streaming services, Disney presented all of the great content coming to Disney+.
The important thing for investors, though, are the finances of Disney's push into direct-to-consumer streaming. The company is planning to expense about $2 billion on content next year, spending about $500 million more on a cash basis. And that's just for Disney+. The company is also spending big bucks licensing and developing content for Hulu and ESPN+, which are both unprofitable.
But Disney is clearly looking to scale its services as quickly as possible. That's evident in its pricing for Disney+, just $6.99 per month. The company expects to reach 60 million to 90 million subscribers by the end of fiscal 2024. It also expects to grow Hulu to 40 million to 60 million subscribers and ESPN+ to 8 million to 12 million subscribers in that same time frame.
If Disney can reach those goals it will not only have a profitable business with massive amounts of cash flow in five years, it will have insulated itself from the cord-cutting trend that continues to threaten its core media networks business.
Image source: Disney
Losing billions in the short-term
Disney told investors ESPN+ will lose about $650 million in operating losses this year and next year, and Hulu will lose about $1.5 billion. It didn't provide any estimates for Disney+ operating losses, but they ought to be pretty massive for the first few years of the service.
Disney+ is designed to scale just like Netflix (NASDAQ: NFLX). The company plans to continuously expand its slate of original content while taking back the streaming rights to some of its best films from Netflix over the next few years. Disney's films and kids series are some of the most rewatchable content available. Even Netflix's head of content Ted Sarandos has praised Disney's films in the past, "Disney is a solely differentiated brand among movie studios. They have some key franchises with consumers," he said at an investor conference in 2015.
The broad appeal of Disney's content library means Disney+ has the potential to reach tens of millions of subscribers. If Disney didn't do everything it could to reach as broad an audience as possible, it would be leaving money on the table and doing a disservice to investors. In the short-term, however, that requires massive expenditures on content and marketing before it has a sizable user base.