THB #82: Disney Q1, 2022 & The End of Theatrical

The headline, for me, from the Q1 2022 report from Disney is that the Hulu Average Revenue Per Unit is $12.96. You can buy Hulu for either $7 or $13 without ads. The higher priced buy is a small minority of subs and has only been recently added as an option in the Disney Bundle, bringing that price from $14 to $20.

The extra money in ARPU for this particular Disney product is in advertising. And this brings the monthly revenue for a Hulu sub (a domestic-only product) to more than double that of Disney+. The revenues for Hulu, SVOD only, were $530m a month this quarter vs only $287m from Disney+. In fact, D+ worldwide (w/o Hotstar) made almost exactly as much as the domestic only Hulu SVOD ($532m vs $530m).

Wall Street and media tend to be obsessed with Disney+, because it is The Brand and Hulu is not only not that, but it is domestic only and will likely stay that.

In this era of streaming - Streaming 2.0: The Competition Arrives - everyone is quickly figuring out that advertising is going to be a big component of success. As great as Netflix is and has been (Disney+ too), consumers will watch ads to pay less. There is a niche business in ad-free. But if you can have it both ways… that is the biggest win, financially.

The combined domestic ARPU of D+, ESPN+, and Hulu is $24.80 a month, $10.81 more than the cost of the bundle. A small amount of that variation is the high-priced Hulu without ads… but most of it is ads on Hulu+ and ESPN+.

Also notable, domestically, D+ and Hulu are pretty close on subs now… which Disney needs. D+ has 42.9 million subs and Hulu has 40.9 million.

Hotstar is the exemplar of what Disney doesn’t really want so much. Of course, they like all revenue. But the $1.03 ARPU for D+/Hotstar, even though the 45.9 million subs makes the quarterly report look better, not a lot of revenue.

Can Disney (and Comcast and Paramount and WBDisco and probably Amazon and Apple, and maybe even Netflix at some point) build a successful Advertising-based VOD (AVOD) business worldwide? This may be the biggest question of Streaming 2.0. (My sense is that Streaming 3.0 will launch when cord cutting becomes a 60% majority.)

And Now… The End of Theatrical.

If you’ve read me for more than a minute, you know I am a strong advocate for theatrical, both aesthetically and financially. But I am still incredulous about Disney’s snow blind exit from theatrical, except for trying to cherry pick mega-Marvel titles to bring in mega-bucks.

But I now believe they are jumping off that cliff.

Since August of 2021, has released 8 movies. Only 3 of the movies were from Disney. The other 5 were from Fox (I’m not including Searchlight here). Every single title has underperformed. The 2 that did best were the 2 Marvel movies, which each did over $200m internationally, exclusively in theaters. The 4 that did worst were Fox titles.

On the Disney theatrical schedule, until November 2022, are 2 more Fox dumps, then 2 Marvel titles and 1 Pixar title, bunched together in May, June, and July. That’s it!

One Pixar title was already grounded and shoved onto Disney+ (Turning Red). And there is paranoia around the June 17 release of Lightyear.

This is not a company that believes in theatrical. At all.

3 Pixar movies in a row used exclusively - domestically - as D+ bait.

Fox’s movies released weakly.

The one real shot with a Disney Animated movie (Encanto), which to Disney’s apparent shock, turned into a phenomenon once people saw it, was fumbled badly. Hundreds of millions of dollars in box office and merchandising and even more benefit to D+ badly.

Marvel gets released. New Bob won’t mess with Feige.

But aside from that, this is not the kind of performance that gets CEOs excited. it’s the kind of performance that gets marketing chief’s fired. Asad Ayaz is a successful veteran hand. But either he’s forgotten how to market movies or he has determined that his boss isn’t much interested in marketing movies, so he’s focusing elsewhere.

New Bob’s take on Encanto’s failure to get to $100 million, but less the $200m+ it should have easily done domestically, is that the market for family films is weak.

Who the hell do you think was going to see Spider-Man: No Way Home, Bob? You can be sure a whole lot more of the $750m and growing domestic gross came from families than the measly $88 million Encanto grossed before you threw it to the yapping maw of D+.

Who went to Shang-Chi and the Legend of the Ten Rings? Who went to Eternals? Who went to Ghostbusters Afterlife? Who went to Sing 2?

You beat The Addams Family 2 by $38 million domestic!!!! You couldn’t even match the first animated Addams from 2019. You remember 2019… when Frozen II opened to $36 million more than Encanto has done domestically?

Disney has been the leader in family entertainment/animation for a long time. You’re building a DTC business in that reputation. But you have abandoned theatrical for animation. Universal, with Illumination and DWA, have been #2. They released only Spirit Untamed in 2021 before Sing 2 in December. The #3 animation company was Sony Animation… sold it all off to Netflix.

How do you see a segment almost completely abandoned and then claim you can’t open a really good film with really good music against soft competition, letting everyone know you‘d be giving it away 30 days later and then blame the market segment for why your movie didn’t do what it should have?

Ralph Breaks the Internet and Moana, your last 2 Thanksgiving animation releases from Disney Animation, both opened to over $80m on the Thanksgiving 5-day. Encanto did half of that. It wasn’t the market. Spidey opened to $260 million in 3 days less than a month later. Not the market’s fault.

The conversation in media has been, as films have fallen aside to streamers, that this one hurts or that one hurts. And each one has.

But when Disney abandons theatrical, as it has, leading with its industry leading family films… that is dangerous. Add #3 Sony doing the same, in terms of theatrical. And then, Universal, doing more interesting things, but still undercutting theatrical and pushing some of its animation direct to streaming… yeah, you killed the market, so the market is dying.

For the entire 30 years I have covered the film industry, executives have sought the holy grail of excuses for failure. I remember the old masterpiece, the Sony Marketing Wheel of Blame. (Bad Date. Bad Movie. Dad One-Sheet. Bad Campaign. Bad Actors. Bad Execs. Etc.) But they knew it was funny. It was Death Row humor for marketers who knew they would always end up taking the blame.

And now, New Bob has given failure its greatest embrace ever… put way the wheel… no movie ever fails for any other reason than The Market. You can’t even blame COVID anymore. It’s The Market! Damn, that market!

Disney has to release the already-made Fox stuff… but aside from that… nada. Not as game changing, but still, one of 5 standing full-service studios. They will hope to get Spidey-level magic out of Dr. Strange 2… then maybe Lightyear… then Thor 4… then shut it all down for 3 full months. Then maybe as many as 3 releases in Nov/Dec. Maybe not.

Paramount has 7 movies scheduled, with the only pretty-sure hits being Top Gun 2 and Sonic The Hedgehog 2.

Warner Bros has The Batman, followed by 7 more movies, 3 of which are DC titles.

Sony may have 9 releases.

And Universal, short windows and all, have 20 films on the 2022 schedule. Our hero! (Our hero? With the 45 day window at its widest?)

Whatever imaginary potential I saw in Disney taking any more shots other than lay-ups? Dashed. Exploded.

Looks like fewer than 55 wide releases from The Majors this year. Under 5 a month.

At some point, it becomes the ultimate in self-fulfilling prophecies.

2022 could be worse at the domestic box office than 2023… even with things getting back to normal. Hopefully not.

How many movie screens will be freshly closed by this time next year? 10,000? 15,000? More?

Thanks for your belief in theatrical, Bob. That and a secret decoder ring will get ya…

Until tomorrow…