Disney on Thursday launched a new ad-supported plan for its flagship streaming service Disney+, about a month after rival Netflix also debuted a cheaper ad-supported tier.
The big picture: Several streaming services are leaning into ad-supported plans to lure users as subscription fatigue sets in.
- Advertising can also help streamers make more money per user, which could help streaming divisions at companies like Disney reach profitability faster.
Details: The new ad-supported plan includes the same content as the ad-free plan for Disney+.
- Initially, the plan is only available in the United States, but the company will likely begin exploring ad-supported plans internationally next fiscal year, said Rita Ferro, Disney’s president of ad sales and partnerships.
How it works: At launch, Disney+ will feature traditional 15- and 30-second pre-roll and mid-roll ads that brands can buy on a run-of-network basis, meaning they can buy a share of the ads that run in rotation on across various programming on Disney+.
- Currently, ads can only be reserved through direct partnership with Disney’s sales team. In the future, Disney will open up its self-serve platform for advertisers to buy Disney+ ads in an automated way, Ferro said.
- At first, advertisers won’t be able to target ads, but starting next spring, they’ll be able to leverage Disney’s first-party customer data to target ads to users based on interest.
- No ads can be targeted to users under 18. Ads will not be included for users using the “kids mode” settings on Disney+, nor will ads be available to run around preschool content.
- The company will not accept political or alcoholic beverage ads to start, Ferro said. Nor will it accept ads from competing movie studios or “tune-in” commercials from competing media companies.
- Ferro said these decisions were made in part because narrow ad targeting will not be available to begin with. Some of these categories need to be targeted at the relevant target group to create an acceptable consumer experience, she added.
By the numbers: The new ad-supported plan will cost $7.99 per month. Subscribers who want to remain on the ad-free Disney+ plan will see monthly prices increase starting Thursday to $10.99 per month.
- Disney, which owns ESPN and 75% of Hulu, has also raised the price of its other streaming services. Starting in August, ESPN+ raised its monthly price to $9.99 from $6.99, including ads. Hulu’s ad-free subscription rose from $12.99 to $14.99 in October. Hulu with ads increased from $6.99 to $7.99.
- Users can also choose from a variety of bundled ad-supported plans for other Disney streaming services. For example, users can pay $9.99 monthly to receive Disney+ and Hulu with ads. It can pay $12.99 monthly for Disney+, Hulu and ESPN+ — all with ads. The largest package offered combines Hulu with live TV, Disney+ and ESPN+ — all with ads — for $69.99 monthly.
Be smart: Disney has long led the industry in streaming TV ads through Hulu, giving advertisers and executives confidence that the integration of ads with Disney+ will be a smooth transition.
- Hulu was the first major streamer to introduce “pause ads” that appear on your screen when you hit the pause button while watching a show, and “binge ads” that only appear to users who are binge-watching a particular TV series. The vast majority of Hulu subscribers today are on the ad-supported plan.
- Next spring, Ferro said Disney+ will be able to support similar ad experiences to what’s available on Hulu.
- The company launches Disney+ ad support level with over 100 advertising partners in the US across most major ad categories. “Every major (advertising) holding company made a deal with us,” Ferro said.
Between the lines: The migration of ads from traditional to streaming TV has exploded in recent years, as marketers look to reach new, and often younger, cord-cut audiences.
- For example, 40% of the $9 billion in advertising dollars set aside in Disney’s Upfront sales event last spring is for streaming and digital ads.
- “Two years ago there was a pivot and it just became the norm that every brand considered streaming as TV,” Ferro said.
The big picture: For years, Wall Street rewarded companies like Disney for increasing the number of streaming subscribers at any cost. Now the market downturn has set a new expectation that streamers should be profitable.
- Disney in particular has faced pressure from investors who have grown frustrated with mounting losses across its streaming division.
- But despite those losses, the company still said on its most recent earnings call that it is on track to break even in fiscal 2024.
Go deeper… Disney needs more revenue from its streaming customers