Disney+ launching cheaper, ad-supported version in U.S. later this year
Streaming service Disney+ is launching a cheaper version with commercials late this year in the U.S. as Walt Disney Co. tries to improve its chances of hitting its subscriber goals.
The Burbank-based company announced the coming ad-supported tier Friday, but did not disclose the price or a precise launch date.
The ad-free Disney+ costs $8 a month in the U.S., already less expensive than its biggest rivals, including Netflix ($15.50 a month for its standard plan) and HBO Max ($15 a month).
“More consumers will be able to access our amazing content,” said Kareem Daniel, chairman of Disney’s media and entertainment distribution division, in a statement. “Advertisers will be able to reach a wider audience, and our storytellers will be able to share their incredible work with more fans and families.”
The firm plans to expand the version with advertising internationally in 2023.
Disney+ adds 12 million subscribers in the first quarter, significantly exceeding analysts’ expectations, and its stock rises 8%.
The Information first reported Thursday that Disney was considering an ad-supported tier.
The tiered pricing strategy has become the norm for media companies in the fast-evolving streaming space, as experts worry about the proliferation of subscriptions putting a strain on viewers’ entertainment budgets.
While Netflix remains ad-free, HBO Max, Comcast’s Peacock and Paramount+ all have less expensive versions with advertising.
HBO Max costs $10 a month with commercials, a $5 discount from the premium tier.
Disney is already in the tiered pricing game with Hulu, which it controls. Hulu has a variety of versions with and without ads and with the option of paying for a bundle of live TV channels. Disney also attracts consumers by bundling its various streaming services — Disney+, Hulu and ESPN+ — at a discount.
LightShed Partners analyst Rich Greenfield noted that Disney is looking to expand its reach through lower pricing, despite having a strong slate of upcoming shows.
“Lowering price and jamming in ads does not feel like the answer to driving usage — if anything it feels like it will have the opposite effect,” Greenfield wrote in a blog post. “Disney needs to focus first and foremost on delivering more must-watch, buzzy content on Disney+.”
Having new content, though, may not be enough.
Disney Chief Executive Bob Chapek has set a goal for Disney+ to hit 230 million to 260 million subscribers by 2024. It currently has about 130 million subscribers globally, having added nearly 12 million in the most recent quarter.
A sizable portion of those customers come in through the low-price Disney+Hotstar service the company operates in India, which generates relatively little revenue for the company.
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In addition to attracting more subscribers with lower pricing, adding commercials offers another way for Disney+ to make money. The company is scheduled to hold its upfront presentation for advertisers May 17 in New York. This comes as marketers continue to move their dollars from traditional television networks to streaming platforms.
“Since its launch, advertisers have been clamoring for the opportunity to be part of Disney+, and not just because there’s a growing demand for more streaming inventory,” said Rita Ferro, president of advertising for Disney Media and Entertainment Distribution. “Disney+ with advertising will offer marketers the most premium environment in streaming with our most beloved brands: Disney, Pixar, Star Wars, Marvel and National Geographic.”
Disney reported last month that revenue from its streaming operation grew 34% to $4.69 billion during the most recent quarter. But the segment’s operating loss grew to $593 million, compared with a loss of $466 million a year earlier, partly due to spending on Disney+ content and marketing. Disney+ is expected to lose money until 2024.
Analyst Doug Creutz of Cowen & Co. said in an email that the commercial-free and ad-supported versions of the same app tend to generate similar average revenues per user.
Disney executives in the past dismissed the idea of adding commercials to Disney+. At an investor event in 2020, chief financial officer Christine McCarthy told analysts “we don’t believe that the consumer experience would be a particularly good one if we had advertising on Disney+.” Clearly, the thinking has changed.
“[I]t’s a pretty big break from what they had said previously,” Creutz said.
Launched in November 2019, Disney+ quickly became a formidable competitor with Netflix thanks to original shows from the company’s Marvel and Star Wars studios, its famed family-friendly library and its low price. Disney+ continued to surge in 2020 as the pandemic kept families at home and eager for entertainment options.
But the gains slowed in 2021 as the supercharging effects of the pandemic faded. Analysts have expressed concerns over whether Disney will be able to hit its lofty subscriber goals. Chapek has increased Disney’s content spending for 2022 in large part to accelerate growth for its streaming businesses.
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