Iger: new technology and Hulu key to Disney+ profitability

Source: Disney

Disney’s streaming offering needs to be at the level of Netflix’s technical excellence to help it achieve the goal of profitability by the fourth quarter of this year, according to CEO Bob Iger.

Speaking at the Morgan Stanley Telecoms and Media conference in the US, Iger said that Disney was “in the process” of creating the technology that would lift Disney+ to Netflix’s level.

“Obviously, the gold standard there is Netflix. We need to be at their level in terms of technology capability,” he said, adding that one reason Netflix’s margins were “so much more significant than ours” was the superiority of the leading streamer’s technology platform.

Iger said that this technology gap meant that Disney’s marketing expenses were higher, because churn was higher.

Bob Iger

In order to combat that high churn, Iger said, it was also important to improve engagement. He indicated that the integration of Hulu would be key to this in the US.

The integration of Hulu into Disney+ was launched in a beta form in December, with a wider launch expected at the end of this month.

“We’re finding that wherever we bundle [Hulu with Disney+], our churn rates are significantly down and that is a path to profitability,” he said.

Iger said that “about 50% or more of new Hulu subscribers are now bundling with Disney+”, leading to improved engagement and lower churn.

Iger added that Disney “may not turn [Hulu] into a global brand” given that its star offering was available in EMEA, Latin America and parts of the Asia-Pacific region.

Costs and content

In order to achieve streaming profitability, Iger said, it would also be necessary to double down on improving costs in the longer term, and in particular distribution costs.

The final ingredient in delivering the path to streaming profitability is driving growth through engaging content. Iger pointed to the appeal of Disney’s strength in movies in particular, the slates of Pixar and Marvel as well as Star Wars and Avatar, and the (previously) animated character Moana, slated to appear a live-action movie to be released next year.

In relation to distribution, Iger said he believed in the benefits of partnerships, even if wholesale rates are lower than those for direct-to-consumer retail. Disney+ with ads is now available in the US via cable giant Charter Communications as the result of a partnership between the pair.

Iger said that this kind of deal, including advertising, opened the way to greater penetration of the platform, which improved the proposition for advertisers.

He added the caveat that Disney needed direct access to consumers coming through via partnerships to combat churn on these platforms. “We need to have the ability to engage with them directly,” he said.

ESPN and the sports JV

In a wide-ranging conversation with Morgan Stanley’s head of US media research Ben Swinburne, Iger also touched on Disney’s plans for ESPN and the planned sports JV with Warner Bros. Discovery and Fox.

Regarding ESPN, Iger said the sports network would launch as a standalone app sometime in 2025, available à la carte, which he said would be “just an augmented way for people to access ESPN that will be made available to both linear subscribers and, ultimately, to people who sign up to the joint-venture”.

On the latter, point, Iger said that there would be a way for JV subscribers to add the ESPN app to their service offering, but that Disney had not yet determined whether this would be as an upsell or something else.

The JV itself, he said (reiterating comments made by Warner Bros. Discovery’s David Zaslav), would be primarily targeted at “young people who have not subscribed to the multichannel fat bundle”, while adding that it would also appeal to “people that used to be subscribers but who have lapsed”.

On Disney’s decision to fold its Indian assets into a joint venture with Reliance, Iger said that while Disney “wanted to stay in India”, he had to concede that there are “challenges in that market”.

Throwing in its lot with Reliance, he said, would “benefit us in term of the bottom line, but de-risk us as well”.