Netflix (NFLX 0.25%) and Walt Disney (DIS -1.74%) have both announced upcoming ad-supported plans. The tiers are being positioned as entry-level offerings, intended to draw in subscribers who will tolerate marketing messages. For Netflix and Walt Disney, that means more opportunities for revenue growth, but there are also risks.
Still, from what we know about each company's release strategy, there are clues to how each may fare and ultimately, which stock is the better buy. Let's take a closer look.
Price and launch date
At the time of writing, only Walt Disney has revealed the price and release details for its ad-supported tier. The company will launch its service on Dec. 8, 2022, costing $7.99 per month. With this rollout, the current $7.99 Disney+ ad-free plan will rebrand as Disney+ Premium and increase to $10.99 a month.
Netflix has said it plans to introduce its ad-based offering in 2023, though it has provided few other details about the plan. There have been reports that the tier could launch before the end of this year, as well as suggestions it will also be priced at between $7 and $9 per month. Netflix has dismissed such coverage as "speculation," so until the company offers something more concrete, much of its ad-plan strategy will remain opaque.
Wall Street analysts have reacted with broad positivity to Walt Disney's plan, though there are still skeptics. Some have cited high inflation and the prospect of a recession in the coming months as a concern, suggesting a price hike for the ad-free tier is ill-considered. Nonetheless, the $7.99 entry point for Disney+ -- with or without ads -- is still cheaper than Netflix's current Basic tier, which starts at $9.99 a month.
Caution around content
Walt Disney has said that, at launch, its ad-based tier will show about four minutes of marketing messages for each hour of content. Additionally, the company will not place ads alongside programming aimed at preschool children. For market watchers, this second point might seem overly cautious, particularly considering how the Disney brand is synonymous with kids' entertainment. But the approach is actually in line with the commercial-free format of the company's Disney Channel, which operates on linear TV.
Sourced reporting indicates Netflix will also not run commercials against preschool content, though again, Netflix has yet to confirm such a position. However, perhaps more interestingly, Netflix reportedly plans to also not run ads alongside newly released original movies. If correct, this could be a counterintuitive decision. After all, the company publicizes viewing statistics for popular Netflix Originals shortly after launch -- metrics that would likely be appealing to marketers.
A history with ads
Although Disney+ is stepping into the ad-supported arena for the first time, Walt Disney itself has operated ad-supported linear TV networks for decades. From ESPN to ABC, Walt Disney has established relationships with a wide array of brokers and brands, serving up countless marketing messages. And as a majority stakeholder in Hulu, Walt Disney is also no stranger to delivering ads in the streaming space.
Netflix has yet to run a single ad on its streaming service. This lack of experience means the company is having to build its ad operation from scratch. The company has established a partnership with Microsoft, which will oversee ad sales and the technology that underpins the marketing service, and hired executives from other companies to run the operation.
Experience counts
Even though Netflix and Walt Disney are launching ostensibly similar products, they have taken different tracks in the messaging of their plans. Netflix's lack of detail has left space for rumor and speculation, while Walt Disney has telegraphed just what to expect and when. Such approaches seem to speak to each company's experience (or lack thereof) with the ad industry; Walt Disney has it, and Netflix does not.
It's also noteworthy that Walt Disney's ad-supported tier will launch first -- something that could have an impact on price-conscious consumers who don't want to pay for multiple streaming plans. Conversely, Netflix could benefit from a later arrival, particularly if it can undercut Walt Disney by a dollar or two. But again, until Netflix shares more information, investors don't have much to go on.
Based on what both companies have demonstrated, Walt Disney is the better bet. Not only does the company have history in operating ad-supported services, it has also told consumers and marketers what to expect from its new tier months ahead of time. For investors, Walt Disney is demonstrating a confidence in its upcoming product that is yet to be matched by Netflix.
