profit, profit, profit, forget volume

I have been griping, for a while, about the auto industry’s pursuit of ever higher ATP and GP per vehicle, regardless of the impact on volume by increasing numbers of people being priced out of the market.

I have griped, for some years, about the apparent strategy at Disney, to escalate their park rates toward infinity, increasing profit, without increasing volume, not giving one whit about the struggles of the parents trying to finance a trip, because their spawn say they will simply die if they don’t get some mouse face-time.

Disney is now at it again, raising the price of it’s streaming services above going market rates.

Disney CEO Bob Chapek again distances himself from Bob Iger with Disney+ pricing decision

The latest break is the 38% price increase for Disney+, announced last week as part of a slew of announcements surrounding Disney’s new advertising-supported service, which will launch on Dec. 8. Disney+, without ads, will increase from $7.99 per month to $10.99 per month. Disney+ with ads will begin at $7.99 per month.

At $7.99 per month with ads, Disney+ will now be more expensive than several other ad-supported products, including NBCUniveral’s Peacock ($4.99) and ’s Paramount+ ($4.99), though it will remain cheaper than ’s HBO Max ($9.99). At $10.99, the ad-free Disney+ will not only be more expensive than Peacock and Paramount+, but it will also be pricier than Prime Video ($8.99), which also doesn’t include commercials.

Disney+ without ads will still significantly underprice
($15.49) and HBO Max ($14.99). Disney’s bundled offering of Disney+, Hulu with ads and ESPN+ with ads, will be $14.99 per month, an increase of $1 from its previous cost.

https://www.cnbc.com/2022/08/21/disney-chapek-iger-disney-pl…

I worked for a couple companies that thought they were such hot stuff, they didn’t need to compete, and could raise prices to the sky. It didn’t end well for either of them.

Steve

2 Likes

Elasticity is one of the most important predictions of any marketing manager.

Elasticity is the numerical expression of how much volume sales will fall as a function of price. If customer preference is very elastic, volume sales will fall rapidly as soon as price begins to rise.

If customer preference is very inelastic, customers need the product and can’t find a substitute so volume sales will NOT fall if the price rises. An example is Mylan Pharma’s dramatic 400% rise in the price of the Epipen. Or even worse, Martin Shkreli, who bested Mylan’s 400% price increase when his company jacked up the price of a anti-malarial/toxplasmosis drug used in HIV-positive patients 5,000%.

https://www.forbes.com/sites/emilywillingham/2016/08/21/why-…

Our capitalist system is supposed to attract competitors to such high-profit situations which will eventually bring the profits down to earth. That doesn’t always happen. Sometimes illegal collusion is caught and punished.
https://www.beasleyallen.com/article/pfizer-to-pay-345-milli…

Do I feel sorry for the Disney-milked parents? Sure. But I feel a lot sorrier for the people who die because they can’t afford their life-saving drugs.

But it’s pointless to gripe about capitalism. Companies exist to exploit markets to the max. It’s what shareholders require.

Wendy

6 Likes

Elasticity is one of the most important predictions of any marketing manager.

Some companies don’t seem to care. They raise prices, sales fall, and they “right size” the company to suit the new, lower, volume.

GM sold 4.3M vehicles in 2005. In 2019, they only sold 2.8M. Management’s response? Multiple waves of plant closures.

Ford sold 3.1M new cars in 1995, 2.6M in 2005. In 2019, they sold just under 2.3M.

RS abandoned one product category after another, starting with computers in the early 90s. Then they exited audio and video markets. They exited the PA equipment market. They exited the burglar alarm market. They kept “right sizing” their product line until they were overwhelmingly dependent on selling other people’s cell phones and service. AT&T, Verizon, and the others have their own stores selling their phones and service, leaving RS with nothing to sell, and the company collapsed.

Disney thinks it’s brand is so strong that people will pay any price. RS and the pump seal company thought that too. Maybe Disney is right. Management says it will keep increasing prices until they see a drop in attendance. I remember when I was a little kid, I didn’t understand money. I bet none of the kids insisting they will die if they don’t get mouse face-time understand money either, and that will reduce the “elasticity” of demand, but leave a sour taste in the mouths of some parents. The elasticity could manifest itself in Disney World being a once-in-a-lifetime trip, rather than an annual thing. Management can comfort itself that another cohort of spawn are created every year, ready to be plucked, and continue to raise prices, rather than increase park capacity. Or Disney could take the auto industry approach, and reduce capacity as attendance falls, so that their metric of wait times for rides stays the same. Discovery Island and River Country parks in Florida were closed twenty years ago, and the space has not been redeveloped to increase park capacity.

breaking news

Just came upon a page of yearly bar charts of Disney park attendance. Their US parks saw virtually zero growth in attendance from 18 to 19. The plague has disrupted data since.

https://disneynews.us/disney-parks-attendance/

Steve…experience says management is never quite as brilliant as it thinks it is.

2 Likes

Disney is now at it again, raising the price of it’s streaming services above going market rates.

Sort of funny. Because I seem to remember (back before COVID so I know this is a long time ago) that the industry was a bit surprised that Disney+ launched at such a low price. So low that it was almost half the price of Netflix!

https://variety.com/2019/digital/news/disney-plus-streaming-…

Disney+ will launch in the U.S. on Nov. 12, 2019, and will cost $6.99 per month, the company announced — nearly half Netflix’s standard $12.99 plan.

Mike

2 Likes

Disney+ will launch in the U.S. on Nov. 12, 2019, and will cost $6.99 per month, the company announced — nearly half Netflix’s standard $12.99 plan.

The article linked in the OP points out Disney+ is still cheaper than Netflix.

So, how is Netflix doing? Oh yeah, it lost a million subscribers last quarter, and called that “better than expected”, because it wasn’t even worse.

Netflix Says It Lost Nearly 1 Million Subscribers, and Breathes a Sigh of Relief

https://www.nytimes.com/2022/07/19/business/media/netflix-ea…

“First mover” advantage does not last forever, nor excuse uncompetitive pricing.

Steve

“First mover” advantage does not last forever, nor excuse uncompetitive pricing.

I think Netflix provides fine value for the price. However, there are so many streaming services providing so much good content, I simply can’t watch them all. I get free Netflix with my phone plan, but I have regularly signed up and canceled HBO Max, Hulu, etc. All of those services have provided great series I wanted to watch, but when the series is done, I’m done with the service.

I would have to think there will be consolidation in the industry, but new streaming services just keep popping up.

“First mover” advantage does not last forever, nor excuse uncompetitive pricing.

Netflix has dominated streaming for more than a decade. It took a long time for them to run out of new markets for the rest of the industry to come up with a half a dozen alternatives to finally knock them down a notch…helped by exiting Russia.
They are still the biggest, by far, just not growing continuously.

But that wasn’t my point. Disney+ is still the smaller guy with lower pricing to try and catch up.

Mike

Disney+ is still the smaller guy…

Depends on how one does the counting, I guess.

“Walt Disney’s total DTC subscriptions all in totaled 221.1 million for the company’s fiscal third quarter ended in June. That was a big beat for Disney+ and its parent. It also passed Netflix in total subscriptions. That streamer noted today that subscriptions and subscribers are not apples to apples. Netflix most recently reported 220.67 million total global subscribers.”

https://deadline.com/2022/08/disney-just-passed-netflix-in-t…