Walt Disney Co. CEO Bob Iger acknowledges that his company got some of its pricing strategies wrong.
Speaking at the Morgan Stanley Technology, Media and Telecommunications Conference on Thursday, Iger admitted that Disney’s quest for bigger profits on its sprawling theme parks, and its bargain initial subscription fee for streaming service Disney+, had consequences. Negatives for the Burbank entertainment giant.
In particular, the price increases at Disney parks backfired because they made a day at Disneyland and Walt Disney World in Florida a less than happy experience for guests, including some of their most beloved fans.
“In our rush to increase profits, we may have been too aggressive with some of our prices,” Iger said. “I think there is a way to continue to grow that business, but be smarter about how we price to maintain that accessibility brand value.”
The company is taking a hard look at whether to keep its mainstream entertainment service, Hulu, and even its sports empire, ESPN. Rising sports rights fees and declining cable television subscriptions have made ESPN less profitable. Iger has previously said that “everything is on the table” regarding Hulu.
He has also said there are no talks about the sale or spin-off of ESPN. On Thursday, he said the company has an “open mind” about the future of ESPN, but remains optimistic.
Park strategies, in particular, have been under the microscope.
“One of the things we had to do was improve the guest experience by reducing crowding,” Iger said. “It’s tempting to let more and more people in, but if guest satisfaction levels are slipping due to overcrowding, that doesn’t work. We have to figure out how we reduce overcrowding but maintain our profitability. And we did it well.”
In January, the company Free overnight self parking reinstated for guests of its Walt Disney World hotels. In recent years, Disney had been charging visitors nightly per-vehicle fees for parking. In addition, the company has expanded the number of days at Disneyland in Anaheim when adult tickets are offered to $104, the lowest price option.
These changes came after years of complaints from fans that Disney had been misleading its guests.
Consumers were upset by Disney’s pandemic-era reservation system, which reduced many spontaneous visits.
Also among the changes that caused fan angst: The practice of including downloads of digital photos of families taken at Disney World in the cost of an annual pass ended. Instead, photo downloads were offered as an add-on for an additional fee. Starting this month, Disney World guests who pay for the Genie+ service will get attraction photos at no additional charge. At Disneyland, free photo downloads are now offered as part of an admission ticket.
But Disney executives now admit that prices for some products were too low, particularly in the highly-followed streaming video sector.
Disney went live with Disney+ in November 2019 at $6.99 a month subscription fee, which helped the service quickly attract millions of subscribers in its quest to rival Netflix. But the service has lost billions of dollars for the company. Disney now charges $10.99 a month for an ad-free version of the service.
“One of the key things we have to figure out is a pricing strategy that makes sense,” Iger said. “In our quest to grow global cribers, I think we got it wrong in terms of that pricing strategy. And now we’re starting to learn more about it and adjust accordingly.”
The company increased the rate by almost $3 a month because it has been losing billions of dollars a year on its transmission projects. In the most recent quarter, Disney’s direct-to-consumer segment lost $1.1 billion. The company also launched an ad-supported Disney+ tier that charges $7.99 a month.
The price change comes as Disney+ continues to grow at a steady pace. However, Wall Street has become less forgiving of media companies that lose large sums on streaming.
Last fall, Disney also raised the price of Hulu, which the company controls. (Comcast owns a 33% stake in the popular streaming service.)
Disney has a deal in place that could lead to Disney buying Comcast’s stake next January.
The looming deadline and Disney’s efforts to cut billions of dollars in costs have led some in Hollywood to speculate that Disney might end up selling Hulu to Comcast or some other entity. Iger suggested Thursday that Disney hasn’t decided whether to keep Hulu, which has been a powerful platform for original shows like “The Dropout” and “The Handmaids Tale,” as well as shows on ABC and FX. Iger called Hulu “a solid platform.”
“We are really looking at the business very, very carefully,” Iger said. “It is a very attractive platform for advertisers. And advertising has proven valuable to us. But the environment is very, very complicated right now.”
Iger said the company would hold off on any decision on Hulu until it has a better understanding of how the streaming wars will play out and where Hulu fits into that.
The Disney boss had resigned from his CEO role in February 2020, making way for Chapek. Iger then retired from the company at the end of 2021. In the three months since his return, he has focused on some of the company’s excesses.
For example, Disney has greenlit dozens of streaming shows with the goal of building a strong catalog to entice customers to sign up for Disney+ and Hulu. However, the industry is relearning that quality over quantity is the key to subscription growth and retention. Disney will continue to build its programming pipeline, in part because the company has already engaged with producers, but Disney now intends to “better streamline our costs,” Iger said.
Iger also noted that sequels to major franchises, such as “Star Wars” and the Marvel Cinematic Universe, will be discussed. He acknowledged that the Disney studio may have released too many “Star Wars” movies.
The company does not want to risk wearing down its valuable intellectual property.
“Marvel has 7,000 characters, so there are a lot more stories to tell,” Iger said. “What we have to look at in Marvel is not necessarily the volume of Marvel storytelling, but how many times do we go back to the well on certain characters? Sequels usually work well for us, but do you need a third and fourth (installment) for example? Or is it time to turn to other characters?
