Disney+ Price to Jump 13% to $21.49 Per Month

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2:13Geetha Ranganathan:Are you a Disney Plus subscriber, either of you guys?

2:16Scarlet Fu:I was. I go back and forth. I think that's a big jump, 13%. I know. Double-digit percentage change to 2149. That's a different level of, do I want to partake in this or not? I was just thinking, while you were reading some of the latest headlines, if you type top worldwide go on the Bloomberg Terminal, not every, but many of the headlines are all reaffirming this inflation theme. The big take today is about how a$5 ,000 bike shows why it's hard to build in America. You talked about the Disney Plus price hike, U.S. mortgage rates climbing above 7 percent, Treasuries swooning because this PMI data is reviving inflation flows.

2:52Scarlet Fu:You can't get away from it.

2:54Geetha Ranganathan:No, inflation is everywhere seemingly and including the streaming business. So let's check out this Disney news here. We can do that with Geetha Ranganathan. She covers all the media stocks for Bloomberg Intelligence. Geetha, I don't know, 13 percent seems like a big jump here. What's behind it for Disney raising the prices here on Disney Plus? Yeah, they're just keeping up here with the Joneses, Paul. So, you know, everybody in the streaming world has obviously been raising prices. And really the narrative for all of the streamers and all of the media companies has shifted away from, you know, chasing subscriber growth to chasing profitability.

3:28And the one way that you chase profitability is implement these price increases from time to time. But I will point out that, yes, while, you know, all of the streamers have been, you know, increasing prices at periodic intervals, Disney, in fact, has been one of the most aggressive in terms of pricing increases. So they introduced Disney Plus in 2019. And just before this price increase that was just announced, they have actually increased their prices by about 170 percent. You know, so it's been a really steep increase from$6.99 to almost$19 right before this price hike today. You compare that to an established player like Netflix, which has only probably raised its prices by about 45 % over the past five years.

4:09So Disney definitely has been one of the most aggressive. But again, this all goes back to that profitability equation and them chasing those high operating margins in the streaming business.

4:20Scarlet Fu:Just for context here, the Disney Plus and Hulu with advertising will cost$12.49 per month on a standalone basis. And that's quite a bit to have to pay to watch for commercials, too. Geetha, you mentioned that Disney Plus is now chasing profitability as opposed to chasing eyeballs, which kind of was the former business model. At that time, it was all about subscriber additions, and you got that through global markets. The U.S. was always seen as the more profitable user base. Does that mean that these streamers are now recommitting to monetizing their U.S. base and trying to target that U.S. base more than they are looking to build on gaining market share globally?

5:00Yes, I think you absolutely hit the nail there on the head, Scarlett. It has become all about monetization. And again, you pointed to the advertising part of the business, the Disney and Hulu bundle with ads. Advertising is another big monetization mechanism. So for those subscribers who are unwilling to pay the much heavier price for the ad-free product, they still do have that cheaper ad-supported version that they're kind of pushing customers to. The one thing that I would kind of try to point out with Disney, which is different from other streamers, is Disney still gets majority of its subscriber additions through the bundle.

5:39So the Disney bundle is still kind of this inherent value proposition, which none of the other streamers really have. I mean, you know, Netflix doesn't have that. HBO doesn't have that. But Disney has this unique kind of value proposition with Hulu, Disney Plus, as well as ESPN. And so, you know, we have seen time and time again that even if prices have gone up, churn necessarily hasn't because they've been able to sell the bundle. But you're absolutely right. Monetization is the new mantra for all of these streamers.

6:08Geetha Ranganathan:So, Geetha, how profitable is the streaming business today in terms of maybe like profit margins and maybe where do they want to get to? Yeah. So, you know, Paul, we've spoken about this so many times, but just like two years ago, Disney actually posted about a$4 billion loss on the Disney Plus streaming business. Today, we're looking at almost about$2.5 to$3 billion of profit. But ultimately, the number, so it all comes down to the margins. So with that$3 billion of profit, they're going to be posting about maybe 11, 12 % operating margin. But the number that everybody is chasing in the industry is the Netflix number, which is 30 % operating margin.

6:50And Netflix itself is trying to get to a 40 % operating margin. So everybody has, the goalposts are constantly moving, but really the 30 % or anything even above 25%, it would really be very, very desirable for any of these rather relatively newer streamers.

7:07Scarlet Fu:How does the Netflix get to 40 % margins? Is that, I mean, Netflix is now going to hike its price as well. Is that the only way to do it? Yeah, they're going to have to hike their prices, but they're going to have to do it very, very carefully because Netflix over the past few months, they've really been battling this whole weakness and engagement. So people not engaging with Netflix content as much as they used to before. And there's a real worry on the street, Scarlett, that that is ultimately going to lead to a revenue decline and possibly put pressure on margins. So this is something that they're going to have to address.

7:42They do have a few growth levers in terms of advertising, in terms of price hikes. But again, it's going to be a very, very careful balancing act, especially as their content budget keeps climbing. So remember, this year, it is going up 10 % to$20 billion. So that's one of they are one of the hugest content spenders in the in the in the media industry today. All right.

8:02Geetha Ranganathan:We've got for the stock of Disney, 35 buy ratings, three holds and one sell. Why we have 39, 39 analysts following one stock. I have no idea. I'm assuming 35 of them are not getting paid commissions, but they're still covering it. So yet the stock is down eight, nine percent year to date. Geetha, what's this? What's the investor consensus about the Disney story these days? Yeah, we really need some kind of catalyst, Paul, some kind of really big catalyst that can move this name. And, you know, earlier this year, I think the big concerns around Disney was, is consumer demand slowing? Are we going to see weakness at the parks?

8:38We heard a lot of noise about international visitation really kind of weakening. We heard comments from Comcast about, you know, their universal parks kind of seeing some weakness in Orlando, somehow Disney has managed to steer clear of all of that. They've kind of shown us that they can grow park attendance, they can grow park profitability. But there is this, you know, there is this looming concern about what is going to be the next big growth catalyst, you know, is it going to be streaming? How are they going to be able to achieve that? Especially as every day you have newer and newer concerns, especially with any of these subscription models.

9:13The latest concern, of course, has been with Muse, you know, the new meta AI agent, which can basically go and cut out some of your pricey subscriptions. So I think anybody with a subscription model is going to have to be really, really careful here.

9:26Geetha Ranganathan:I didn't even think of that.

9:27Scarlet Fu:Okay, that is kind of a useful thing for that app. Maybe I will download it. I will concede to that point. Geetha, of course, there's a lot of big news around Paramount Skydance settling with California and other states, but I noticed there was one story here, and this kind of ties in with our conversation about streaming overall, about Pluto TV, which is part of Paramount Skydance. There's a new ad campaign for Pluto TV, which is a free streaming service with the slogan free is only getting more popular. And it ties in nicely with everything we've been talking about with Disney plus hiking its prices, Netflix having no choice but to do that as well.

10:03Scarlet Fu:I mean, what does Pluto TV do? Is it a replacement for HBO, for Netflix, or Hulu? It is not a replacement for, unfortunately, for Netflix or Hulu, but it does give you some of your older shows, what people call comfort food television, and you're not really going to be paying anything for it. Of course, you have to watch a bunch of ads. Some people are okay with that as long as they just want to put something on on their television, but don't want to be paying like$100 or$200 and all of these different streaming subscriptions. So it kind of works well. And we've seen some of these services actually do really well.

10:39Roku Channel is a great example. 2B from Fox is a great example. And so I think, you know, Pluto TV had a great run initially, but then kind of fell off the bandwagon a little bit. But I think with, you know, the new management, with Paramount Skydance, with David Ellison, you know, I think he's going to try and reinvigorate that whole business just as things are kind of heating up with Fox and its Roku acquisition. So I think all of this is kind of going to tie in together nicely once they all come together.

11:07Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects.

11:49Scarlet Fu:Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans. This is Robert Smith from Business History. If you're listening to this, there's a good chance you're a small business owner. And like every small business owner, you started with a dream to do what you love and watch it grow. What you probably didn't dream about? Keeping up with cyber threats. That's where MasterCard can help, with access to tools that help identify cyber threats to better protect your business. Building your dream business? Priceless. For cybersecurity in a changing world, there's MasterCard.

12:21Learn more at MasterCard.com slash small business.

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13:51Scarlet Fu:What prompted you to decide to take the plunge?

13:54Geetha Ranganathan:I was told I'm taking the plunge. Oh, okay. All right. That's the easiest way. I said, okay, I'm going with an experienced cruiser, so I figure. And a river cruise, I was told that you need to walk before you can run, before you take that big ocean. Okay, smart, smart. So there you go. So anyway, this story jumped out at me today. Royal Caribbean buys a 50 % stake in Sandals Resorts for about$3 billion. So I figured we got to get Brian Egger on here to talk about this. Brian covers all the cruise companies, the gaming companies, all the fun stuff out there, the hotels, motels, all that stuff. Brian, what's Royal Caribbean doing here?

14:24Geetha Ranganathan:This is a little bit unusual. Yeah, so Royal Caribbean, along with Carnival and Viking, have been developing island-based destinations. And so this is part of a continued, maybe you call it a land-based strategy, to augment their cruise assets with destination ports of call and land-based assets. So this is a bit different because obviously they are all-inclusive, dedicated resorts.

14:48Scarlet Fu:which are seeing a moment, right? Which are a big thing right now. Yes, exactly. So while it is a departure, it's not entirely far afield for them because they are already involved in island-based destinations. I like that idea. Land-based strategy, island-based destinations. This is a purchase of 50 % of sandals. Why not go all in? So, I mean, we don't know exactly the strategic reasons, But I would say from our perspective, having that equity exposure while maybe only tapping part of its existing liquidity and not having to lever up. And at the same time, you know, it may be part of the consideration.

15:30They get tax exemptions from being an international shipping operator. This basically keeps that part of a separate joint venture. So I think the scale of it makes sense. I think had they done something that was more than 50 % of control, would have levered up quite a bit.

15:47Geetha Ranganathan:All right. So I'm paying, I don't know,$4.50 a gallon to fill up the Vespa. If I've got a big cruise ship and I'm loading, I could pull up and I've got to fill up with, I guess, it's bunker fuel. Yeah. That's really expensive, too. What is going on there? How did the cruise ship industry, how did they deal with these rising fuel costs? So short answer to the question, they do some hedging, not Carnival, but Royal Norwegian. And we had a new one out this morning actually talking about the fuel cost exposure, which we were more concerned about maybe a week ago with Brent at 110. Now it's down just about 100.

16:23But we are aware of this fact because Carnival reports earnings next week. When they last reported in June, Brent was at 77 bucks. So they're all updated. Their fuel cost exposure. They can mitigate it with some efficiency. You know, this is only part of the picture, but obviously higher fuel costs challenge it.

16:42Geetha Ranganathan:There is a ticker on the Bloomberg terminal for this bunker fuel stuff. I'm not sure if I picked up the right one, but January it was called at four hundred and twenty five dollars per metric ton. Now it's eight hundred forty five dollars per metric ton. Imagine pulling up and filling up your tank and have it be double.

17:00Scarlet Fu:Right. What it was before. So that raises a good point because we know that Paul booked his biking cruise. what, like a year ago? Yeah. Okay. So, I mean, Viking had that booked for them. They knew it was coming up and they have visibility. But for the cruise line operators that are now booking people for a year out, have those prices gone way up because of the fuel prices? They're not doing anything like fuel price surcharges. But that being said, the underlying demand for leisure-based vacations for cruises has been really strong. Overall, the bookings have been really quite robust for cruises generally, with the exception of Eastern Mediterranean cruises affected by the conflict in the Middle East.

17:39So the conflict in Iran is that's a separate thing, twofold impact, although but that's one of the causes, obviously, of higher fuel costs. So it really has a dual impact. Yeah.

17:49Geetha Ranganathan:All right. Enough on that stuff. Let's get to the casinos. How's Vegas doing? How's the strip doing? How are my friends on the strip doing? So better, I guess you could say better or stabilizing versus last year, 2025 is a tough year for Vegas. A lot of softer midweek visitation, a little bit of sticker shock from some more price-conscious visitors. So visitation was down last year. It's flattish this year to date. So it's not exactly robust. The convention business has been strong. But the midweek Weasier business, particularly for more value-conscious consumers, lower-priced casinos, is softer.