Disney Chief Executive Officer Bob Chapek doubled down on the world’s largest entertainment company’s intention to acquire Comcast’s stake in Hulu as soon as it can, and that it has no intention to sell or spin off its profitable sports network ESPN.
Chapek told investors at the Goldman Sachs + Technology conference Wednesday that he feels ownership of both Hulu and ESPN will help position Disney to become the leading streaming service, unseating Netflix.
“I do believe that we have to have full ownership of Hulu to integrate with Disney+, and we would love to get to the end point earlier,” he said (reiterating similar statements he said over last weekend’s D23 Expo). “If we can get there, I’d be more than happy to try and facilitate that.”
On industry speculation that Disney may try to sell or spin off its ESPN sports division, he said definitively: “Disney is the place where ESPN can be maximized rather than that asset sitting anywhere else. Despite the market demand to sell or spin off ESPN… we like where it sits.”
This means Disney will have three separate streaming platforms to contend with as the entertainment giant plots it way forward in an increasingly more competitive streaming landscape. The company has forecast it will have between 135 million and 165 million core Disney+ subscribers by 2024, which is when the service is expected to turn a profit.
There’s been no decision yet on if Disney will merge Disney+, Hulu and ESPN into one platform or offer them as an a la carte bundle. The three platforms boast a combined 221 million subscribers, but Chapek noted that the company priced its flagship Disney+ at “a pretty absurd” $6.99 a month when it launched in 2019 — and that’s one reason why it makes less money per user versus competitors.
One thing is for certain, the Disney CEO said, prices will be increased.
“We still have the ability for consumers to bundle, and we encouraged people to go to that bundle because the churn is so low,” he said. “Its a win, win, win. At the same time, we also know there is going to be an option at some point in 2024 specifically to reconsider the way we go to market.”
The company announced in August that price increases are coming in just a few months for both Disney+ and Hulu, and that an advertising-based service will launch Dec. 8 for $7.99 a month. The current ad-free version will increase 38% to $10.99 a month.
“I think we’re way underpriced relative to the value we provide,” Chapek said, adding that Disney still has wiggle room to bump prices even higher since the ad-free service will still be lower than competitors. He also didn’t seem particularly worried about combing the squeaky clean image of Disney+ with the more adult fare available on Hulu.
“The thing you have to worry about as Disney is brand friction,” he said. “I’m amazed at how elastic the brand is. There’s more of a degree of freedom than anybody expected.”
Of course, Chapek still needs to gain control of full ownership of Hulu — which is 33% owned by Comcast. The cable and entertainment conglomerate, which also might be interested in buying Hulu to beef up its ailing Peacock streaming platform, has the right to sell its stake to Disney starting in January 2024. The stake is estimated to be worth at least $10 billion.
He also pledged to “not do anything rash” when it comes to ESPN+, which is distributed through pay-TV providers as part of their cable offerings. But, Chapek added, “at some point we see the writing on the wall” when it comes to combining live sports programming to its main streaming platform.
Activist hedge fund manager Dan Loeb plunked down roughly $1 billion last month into Disney’s stock, disclosed in a regulatory filling, and urged Disney to spin off ESPN to unlock cost savings that can be deployed elsewhere. Loeb has since walked back his request.
There might be a ton of strategic decisions ahead, but Chapek told investors that there’s one thing on Disney’s side: “We have an embarrassment of riches with regard to the plethora coming from our creative engines” that will help draw new subscribers and keep current users engaged.
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