Rate versus ARPU: Who’s winning?

A subscription to Disney+ costs $6.99/mo., a new Hulu SVOD account costs $5.99, and ESPN+ clocks in at $5.99 . But according to new metrics released by Disney during its Q3 earnings report, the amount of monthly revenue  tied to the three services is different: $4.52, $12.59, and $4.54, respectively, per subscriber.  So what gives?

The variance between advertised rates and what Disney actually pockets presents a lesson in SVOD economics, and a testimony to the influence of advertising and distribution strategies.

Disney+:There’s no question the year-old service has been a runaway global hit. With nearly 74 million subscribers as of early October, it’s the world’s second-largest SVOD service, trailing only Netflix and its 195 million paying subscribers (with apologies to Amazon Prime Video, which operates on a different subscription model). What’s apparent is that price doesn’t equal revenue, however. The monthly ARPU associated with Disney+ is lower by 35% from the rack rate, owing to a combination of discounted annual subscriptions, a bulk-sales discount granted to Verizon, and steep subsidization of the service in India, where Disney’s Hotstar service offers inexpensive access. The Verizon deal in particular is influential in the behind-the-scenes economics. As Verizon wireless subscribers begin to peel away from Disney+ because their 12-month free-access ends, we would expect to see some pressure on the total subscriber count, coupled with some improvement in the ARPU numbers. With Verizon believed to account for well more than 5 million Disney+ subscribers, the wireless network provider is a big contributor, and unless Verizon extends the free offer (or is able to pick up lots of plan upgrades that include free Disney+), will exert some downward pull on the gross subscriber total. Also, Verizon in August added another inducement for certain new unlimited plan subscribers in the form of free access for to the $12.99/mo Disney+, ESPN+, Hulu SVOD bundle.

Hulu: There are significant rate-versus-ARPU variances in both the SVOD and the “Live” iterations. Most of this reflects the significant contribution of advertising revenue, although a higher rate ($11.99) for a commercial-free SVOD version also moves the ARPU needle, as does the sale of add-on services. Hulu’s success in building a scaled TV advertising business, believed to generate more than $2 billion annually, presents a tantalizing model for ad-supported streaming aspirants. That said, Hulu’s combination of a large user base, advanced targeting technologies, low ad clutter, and a brand-safe environment are not easily emulated. But there are encouraging signs. The much smaller fuboTV, for example, this week reported its ad revenue for Q3 was $7.52 million, equating to monthly ad ARPU of more than $5 based on the ending count of 455,000 subscribers.

ESPN+: Here, the ARPU level lags the retail price, partly because ESPN+ is discounted within the $12.99/mo Disney+, ESPN+, and Hulu bundle, and partly because advertising revenue has slipped lately. Disney this week noted that the monthly ARPU for ESPN+ declined to $4.54 from $5.15 a year earlier, even though an August 2020 rate increase helped to offset the impact.

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