The Walt Disney Company (DIS 1.54%) entered the streaming wars in November of 2019 with the launch of its flagship service Disney+. Priced at less than $8 per month and lower in some regions, it was one of the more affordable options available. Disney's treasure trove of content assets and incredible timing, launching just before the pandemic kept hundreds of millions of people home for an extended period, fueled the success of the flagship service.
Now that economies are reopening and the initial buzz from a new launch is fading, Disney is looking to a new catalyst. Interestingly, Disney's other streaming services have ad-supported options, whereas Disney+ does not. Ad spending across those services exploded by 43% to $3.4 billion in 2021. Observing the strong appetite from marketers to advertise on its services, Disney is launching an ad-supported version of Disney+ later this year.
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Advertisers spend more with Disney
Here is what Kareem Daniel, chairman of Disney Media and Entertainment Distribution, had to say about launching an ad-supported version of Disney+:
Expanding access to Disney+ to a broader audience at a lower price point is a win for everyone -- consumers, advertisers, and our storytellers. More consumers will be able to access our amazing content. 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.
In its fiscal year ended Oct. 2, 2021, Disney noted that advertising revenue from its streaming services surged 43% to $3.4 billion. The figure was roughly one-fourth the total it earned from subscription fees. Making available an ad-supported version of Disney+ will undoubtedly grow that sum. And remember that serving advertisements is a lucrative endeavor. It does not cost much other than the initial expenditure to develop the capabilities needed.
Moreover, it could help spark subscriber growth. As of Jan. 1, Disney boasted 129.9 million subscribers to Disney+ worldwide. That was up from 94.9 million at the same time the year before. If consumers are given the option to pay a lower price per month in exchange for seeing a few commercials, many will jump at the opportunity. For Disney, that could unlock a new cohort of customers who otherwise would not have joined at the higher prices. The icing on the cake is that Disney will likely generate a similar average revenue per user regardless of which option consumers choose. The money coming from advertisers offsets the lower price paid by consumers.
What this could mean for Disney investors
The move helps Disney grab a larger share of a massive market. In 2021, marketers spent $763 billion on advertising globally. What's more, the bulk of that spending is moving to digital channels like streaming TV. Management's decision to include an ad-supported version of Disney+ adds more inventory it can sell to marketers who show a strong appetite.
Given that consumers will likely pay a lower price for the service, it has the makings of a win-win situation that Disney management alluded to above.
