What to expect from Disney's biggest day of 2020

Five predictions for investor day

Disney’s big news was upended by Warner Bros. announcing that its entire slate of films in 2021 will release simultaneously on HBO Max and in theaters. Phew! Big news. 

Disney isn’t far behind. 

On Thursday, Disney will present mammoth plans for its streaming future to investors and press. There are rumors of what to expect (Black Widow with a simultaneous release on Disney+ and in theaters), and expectations set for details on big projects like Disney’s new Star streaming service. WarnerMedia might have gotten out ahead of Disney, making it seem like Warner Bros. is the first to pivot, but the company isn’t an outlier — it’s part of a wave that Disney is only going to reiterate in a few days. 

Without knowing what to expect, we can predict a few things that are likely to happen. And, in the spirit of this newsletter, we can tie those predictions to trends that we’ve seen span over the last couple of decades, and accelerate over the last 12 months. 

Prediction #1: Expect a large portion of the event to talk about Star, Disney’s “Hulu” for international audiences

This is less of a prediction and more of a “yes, and” bullet point. Disney CEO Bob Chapek has explicitly said they plan to talk more about Star at Disney’s investor day.  

Here’s what we know about Star: It will stream TV shows, limited series, and films from ABC, FX, Freeform, Searchlight, and 20th Century Studios. Star will not carry licensed content from other, non-Disney brands, which makes it different from its US counterpart-of-sorts, Hulu. Chapek told analysts in August that “we want to mirror our successful Disney Plus strategy” by using the same technical platform Disney+ uses, relying on its own brands, and promoting it to international audiences under the Star brand. 

A brief reminder of how Star plays into Disney’s grander plans: Disney acquired Star India and, more importantly, Star India’s HotStar in 2019 as part of the Fox deal. The company changed the name to create Disney Plus HotStar. So, making Star the international brand is a smart play. Disney is looking at its streaming services as global offerings. The United States is reaching a level of over-saturation, and there’s only so much growth companies can see. Netflix, for example, continues to add domestic subscribers, but not as much in years prior. If people in the US are going to have Netflix, and keep it, they’re likely already subscribed. 

Disney needs a more general service that can bring in a sect of subscribers who aren’t going to use Disney+. Star gives Disney the opportunity to have a potentially ad-supported streamer that meets those subscriber needs. The big sell: the inevitable bundling. Disney will bundle everything.

Prediction #2: Hulu’s future 

What’s going on with Hulu? It’s something everyone I know or read has asked. Hulu was supposed to be Disney’s big international play. Former CEO and current executive chairman Bob Iger outlined it as such. Back in November 2018, Iger told analysts that because of “subscriber growth and the relative brand strength and other things too,” investing in Hulu was key to Disney’s overall growth. Then, Chapek swooped in and said that wasn’t the plan. Questions about whether international licensing concerns played a part or if Hulu’s brand wasn’t as recognizable as it needed started to spring up. Things had changed. 

I referred to Hulu as a conundrum that Disney had to figure out. What does Hulu provide for Disney as a domestic only platform? It has a live TV component that continues to grow (albeit, slightly) and it’s a platform that does bring in advertising revenue. Hulu’s own subscriber base continues to grow, although it’s hard to determine how much of those are individual signups compared to Disney+ bundles — and therefore, how many people are actively seeking out Hulu versus liking it as an add-on they tap into from time to time. How much is Hulu driving consistent subscriber usage of Disney products versus how much of its existence is just another app in the TV row of streaming services? When do those small revenue points run out without international expansion?

Here’s my prediction: the Disney+ 18+ “ad” that went around Twitter a couple of weeks ago? This is part of Disney’s bigger strategy to roll Hulu content into Disney+. To be blunt, I don’t understand Hulu’s place within Disney now (I thought I did a year ago), but I do understand the importance of Disney+. I also understand that Disney+ has a content issue for people who aren’t as interested in the main pillars (Marvel, Pixar, Star Wars), but are fans of other Disney properties (ABC shows like Modern Family and Blackish). Having that type of programming available to Disney+ subscribers also brings in more comfort TV — the thing that keeps people subscribed as they revisit favorites and find things to fall asleep to at night. 

Integrating a big portion of Hulu’s library with Disney+ makes a lot of sense. Hulu continues to make increasingly less sense. Plus, Disney still has a big payout to Comcast coming — one that’s currently estimated to cost about $9 billion. Hulu isn’t worth $9 billion, or the extra billions it would cost to roll it out internationally. Some of the programming on Hulu currently that Disney owns, however, is worth keeping for making Disney+ even more tempting of a product. 

Which leads us to...

Prediction #3: Disney+ has more than 100 million subscribers

This isn’t really surprising, so I’ll keep it short — but I expect that Disney+ is over 100 million subscribers. Not Disney+, Hulu, and ESPN+ combined, just Disney+ alone. 

The last time Disney gave us numbers was during the company’s fourth quarter earnings call in November. Disney+ had 73.7 million subscribers. That was just days before Disney+ rolled out into Latin America. From what I understand, Disney+ performed extremely well in that initial roll out, making a 100 million subscriber milestone for Disney somewhat inevitable. 

It’s pretty remarkable. Netflix hit 100 million subscribers in April 2017, seven years after Netflix launched a streaming service and four years after its major streaming initiative push with originals like House of Cards and Orange is the New Black. 

Disney did it in just over one year. To quote Netflix co-CEO Reed Hastings, “To see both the execution and the numbers line up, my hat’s off to them.”

Prediction #4: Half of Disney’s 2021 slate will become exclusive Premier Access simultaneous titles, others will go direct to Disney+ 

At the start of this newsletter, I said that WarnerMedia got out first, but Disney is set to follow. 

We already know they’re kind of doing it. Cruella, Peter Pan & Wanda, and Pinocchio were reported as likely titles to become Disney+ exclusives a couple of weeks ago. People have speculated for months that Black Widow could get a simultaneous release as a Premier Access title and theatrical release depending on where the virus is by May 2020. 

Now, we’re going to hear exactly how aggressive Disney is planning to get with its Disney+ priority. My bet? Similar to Warner Bros. Here are some points to take into consideration: 

• In 2019, movie theater attendance per capita was at a century low.

• -The number of young people going to theaters throughout the year is declining (despite this being the bracket that consumes the most content).

• More than half of “frequent” movie goers have stopped going as much.

• 2021 is slated to be a tough year for all studios because of increased competition in tight timeframes. 

• The time that Black Widow would normally get to own the box office (about three weeks) doesn’t exist in 2021.

• Disney’s 2021 slate is not its 2019 slate. There’s no big Avengers movie, no highly anticipated live-action remake, no sequel to a popular Pixar title. Like Warner Bros., if there was time to experiment with a year of simultaneous or exclusive premieres on Disney+, it’s 2021. 

Add in that Disney is foregoing next year’s semi-annual dividend at the request of a major shareholder to put more money into Disney+ and other streaming initiatives, and the bet makes even more sense. As I wrote this week over at The Verge when looking at the HBO Max move, the simplest thing to do — not the easiest, and not necessarily the most immediately beneficial — but the simplest is to take a year of likely losses theatrically and use it to scale Disney+ as much as the company can by using its movies to get people to subscribe and stick around. I expect we’ll hear more about simultaneous releases — something Disney did with Mulan to an extent, by releasing the movie in theaters internationally and on Disney+ in the US — but I expect if you want to see Black Widow in May, you’ll have a few options available. 

Prediction #5: ESPN is about to become way more streaming heavy

Ah, ESPN. The once fruitful cable network that charged ludicrously high affiliate fees because more than a hundred million people wanted to subscribe to ESPN. 

That’s no longer the case. Here’s a brief reminder from a previous newsletter about how ESPN works for Disney: 

• ESPN’s two biggest forms of revenue are subscription fees and advertising, but it’s not like either of those areas are bulletproof. Let’s look at subscription fees. Cable customers who want access to ESPN purchase packages through their television providers (like Comcast). Cable providers then pay Disney to carry ESPN — these are called affiliate fees. ESPN is routinely one of the most expensive networks for cable providers to carry, and for one reason: ESPN is the most popular network among men and reportedly reaches more than 200 million viewers a month. ESPN also belongs to Disney’s media networks division, which in 2019 saw roughly $25 billion in revenue, surpassing Studios and DTCI. ESPN was critical to that revenue.

The issue is that ESPN’s customer base peaked in 2011, and has been declining ever since alongside the decline of pay-TV. Even if people are sticking around purely for sports and news, and ESPN is still a big part of the plan for those subscribers, it still exists as a core part of a depleting industry. Iger spoke to Ringer host Bill Simmons about Disney and ESPN back in February, noting that, “If you’re running a business in a dynamic world and you try to maintain any kind of status quo, you will become irrelevant.” The issue with ESPN is that pay-TV was still “delivering a fair amount of profitability to ESPN” making it much harder to just pivot. Add in ongoing negotiations with the leagues that are a little less streaming friendly and, well, chaos. 

That was in the before times, though. More people cut cable over the last 10 months, and it’s going to be hard for telecoms to get them back, and that cuts into affiliate fees that Disney can charge and overall subscriber numbers. It’s a pivotal moment, and the obvious answer is to pivot even harder to a much more digital ESPN. Not necessarily ESPN+, which analyst Matthew Ball referred to as “ESPN-,” a term that I love, but a full on streaming ESPN. 

This relies on a few things happening. The leagues have to be on board, the move needs to continue generating revenue that ESPN does bring in, and Disney has to convince people to use their own ESPN streaming service more so than virtual TV providers like YouTube TV. Considering leagues like the NFL working out deals with Amazon, and ViacomCBS currently streaming some NFL games on CBS All Access, working out those deals are less of an issue. It’s a big pivot, but it’s one that Disney has to figure out, especially when the company’s revenue continues to be hit by ongoing problems outside of its media and entertainment divisions. 

I’m not expecting Chapek to come out and yell, “We’re launching a new version of ESPN that will cost $25 a month and gets you everything we air on TV,” but I would be surprised if ESPN’s digital and streaming future wasn’t brought up at all. 

I could make a ton of predictions, based on some information I’ve received and some estimated guesses based on what I’ve read, but we won’t know for sure until December 10th. The investor day kicks off at 4:30pm ET/1:30pm PT.