Is The Price Right for Bob Iger’s Disney?
There has been much ink spilled on the recent leadership changes at Disney. The return of Bob Iger heralded much fanfare about how he would steer the entertainment behemoth back to its top perch.
Iger made headlines recently by suggesting that the price for Disney+ is too low. Based on the public’s (negative) reaction, he’s probably right. And that’s good news for XaaS companies everywhere.
A hot take from Bob…?
In particular the role of pricing strategy has been often discussed – from how much people pay for experiences at Disney’s theme parks to the cost of the Disney+ streaming service.
Personally, I believe Disney+ is a great service. Between the Marvel and Star Wars content, my household is pretty satisfied by the Mouse and all its franchises.
Notably, Iger stated that he believes the current price for Disney+ is too low, and this comment seemed to raise eyebrows (and pulses!). You can see why:
- a 100% discretionary product facing a challenging economic situation at a time when we are hearing all the time that people have “subscription fatigue” doesn’t scream “quick – hike up the price!”
… or did Iger get it right?
Despite the backlash, let’s not jump to conclusions. I think Bob’s actually on to something, and some quick math can prove it.
One very interesting item that jumped out to me in the story was a poll that was included. It shows, based on the responses, 37% of respondents think Disney+ is too expensive at (I assume) the $10.99 price point. Let’s run with this and assume a fictional market of 10 million potential buyers. Assuming those who class $10.99 as too expensive wouldn’t buy it but everyone else would, that’s 6.7M potential buyers, and (assuming no variable costs) that’s $73.6M profits. Not bad.
So, what if the price was dropped to $7.99? To make the same profit, 9.2M customers would have to purchase it. That means that the portion of customers who would consider it “too expensive” would have to drop to 8%.
Do we really believe that the number of customers who think $10.99 is too expensive would be ~5X the number who think $7.99 is too expensive? For a price increase of $3 a month (roughly the price of 2 bottles of Budweiser, if you buy in bulk), would I really be 5 times as likely to decide not to buy the product?
I suggest to you that the answer is “no,” and therefore Disney will also certainly do better in terms of revenue and profits by selling at $10.99.
This result is even MORE noteworthy because the poll is slightly biased (maybe unintentionally) against the $10.99 price point. There is no “I think it is inexpensive / I would pay more than $10.99 for it” option. I’d wager there is probably a considerable number of people who would pay even more (I’m one of them!), so $10.99 may not even be high enough.
All-in-all, well done to Bob’s pricing team!
Candidly, if Disney+ can support a 38% price increase in this economic environment, that should offer hope, optimism and confidence to a lot of XaaS vendors.
We tend to assume that all our customers will churn if we raise prices, but in my experience that is rarely the case if you have a value-added and differentiated product or service. Sure, you’ll lose some customers, but likely not enough to not make it a good idea overall.