Disney debuts $7.99 ad-supported tier for Disney+

Disney on Thursday rolled out a new ad-supported plan for its flagship streaming service Disney+, roughly one month after rival Netflix also debuted a cheaper ad-supported tier.

The big picture: More 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 can help streaming divisions at companies like Disney achieve profitability sooner.

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 U.S., but the company will likely begin exploring ad-supported plans internationally next fiscal year, said Rita Ferro, Disney's president of advertising 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 on rotation across different programming on Disney+.

• For now, ads can only be reserved through direct partnerships with Disney's sales team. In the future, Disney will open up its self-serve platform to advertisers to buy Disney+ ads in an automated fashion, Ferro said.
• To start, advertisers won't be able to target any ads, but starting next spring, they will be able to leverage Disney's first-party customer data to target ads to users by interest.
• No ads can be targeted to users under 18. Ads will not be included for users leveraging 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. It also will not accept ads from competitive movie studios or "tune-in" promotional ads from competitive media companies.
• Ferro said those decisions were made, in part, because narrow ad targeting won't be available to start. Some of those categories would need to be targeted to the appropriate audience to create an acceptable consumer experience, she added.

By the numbers: The new ad-supported plan will cost $7.99 per month. Subscribers who wish to remain on the Disney+ plan without ads will see their monthly rates increase, beginning Thursday, to $10.99 per month.

• Disney, which owns ESPN and 75% of Hulu, has also increased the price of its other streaming services. Beginning in August, ESPN+ raised its monthly price to $9.99 from $6.99, including ads. Hulu's subscription without ads rose from $12.99 to $14.99 in October. Hulu with ads increased from $6.99 to $7.99.
• Users can also select from a range of combined 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 biggest 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, which gives 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 for users who are binge-watching a certain TV series. The vast majority of Hulu subscribers today are on the ad-supported plan.
• By next spring, Ferro said Disney+ will be able to support similar ad experiences to that available on Hulu.
• The company is launching the Disney+ ad-support tier with over 100 advertising partners in the U.S. across most major ad categories. "Every major (advertising) holding company did a deal with us," Ferro said.

Between the lines: The migration of ads from traditional to streaming television has exploded in recent years, as marketers look to reach new, and often younger, audiences that have cut the cord.

• For example, 40% of the $9 billion of advertising dollars reserved in Disney's Upfront sales event last spring, are for streaming and digital ads.
• "Two years ago in the upfront, there was a pivot and it just became the norm that every brand considered streaming like television," Ferro said.

The big picture: For years, Wall Street rewarded companies like Disney for growing their number of streaming subscribers at any cost. Now, the market downturn has set a new expectation for streamers to be profitable.

• Disney, in particular, has faced pressure from investors who have grown frustrated with widening losses across its streaming division.
• But despite those losses, the company still said on its last earnings call that it's on track to reach streaming profitability in its 2024 fiscal year.

Go deeper... Disney needs more revenue from its streaming customers