AVOD after earnings
On the heels of multiple earnings reports, Netflix, Disney+, and Prime Video have each offered glimpses into the future of their AVOD offerings. Prime Video clarified that their new ad-offering will be the default experience in early 2024 (at $8.99/month as a standalone service), while removing ads will cost an additional $3 a month. Disney+ claimed that 50% of new subs (March-September 2023) are joining on the ad-based tier for $7.99/month and have started to expand the ad-tier to European markets. Netflix claimed that their $6.99/month ad tier saw 70% growth in Q3 and has grown to fifteen million monthly active users, up from five million last May. Future enhancements include better resolution, new ad length options and new targeting options (by ad category, device, genre, time of day, or audience demos). Netflix will also be rolling out a binge feature, wherein subscribers who watch three consecutive episodes of a show will get a fourth without ads.
The Circana Take:
- Streaming grew, in large part, as a commercial-free alternative to cable. But the higher revenue per user, increased programming cost and price sensitive consumers have enabled ad-based streaming for the foreseeable future.
- As services grow their ad businesses, advertising loads, durations, and targeting will need to be carefully evaluated to sustain a healthy subscriber base that remains tolerant of the innovative new formats.
Disney buys out Hulu from Comcast
In a widely expected move, Disney began the process of buying out the remaining 33% share of Hulu from Comcast. The 2019 guaranteed floor value of $27.5 billion means Disney will shell out roughly $8.61 billion after deducting about $567 in capital call contributions that Comcast’s NBCU owes to Disney. The final value, however, has yet to be determined, and the evaluation phase is still underway. Each company has hired an investment bank to put forth a total valuation for Hulu as of September 30, 2023. If the two estimates are within 10% of each other, then the final price will be the average of the two. However, if they are too far apart, the two investment banks will agree on a third investment bank, which will complete a third valuation process. The final valuation would then be the average of the two closest valuations. Both companies have said that they expect the appraisal process to be completed in 2024.
The Circana Take:
- Now that the process is underway, Disney is likely to accelerate the development of Hulu through international expansion as well as deeper integration with Disney+.
- While it will take time to finalize the appraisal process, the ultimate price that Disney pays for Hulu is expected to pale in comparison to the overall value of having complete ownership of Hulu.