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Disney+ is introducing ads but its plans aren't getting any cheaper

Recently reinstated Disney CEO Bob Iger ringing the opening bell at the New York Stock Exchange.
Recently reinstated Disney CEO Bob Iger ringing the opening bell at the New York Stock Exchange.


Iger is back in the house of the mouse.

Millions of US Disney+ subscribers are getting the option to pay the same price for an ad-interrupted streaming experience, as the platform introduces a change to its subscription plans.

Starting Thursday (Dec. 8) the ad-free experience will increase to $10.99 a month from its current $7.99 price tag, the cost of the ad-inclusive subscription.

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Disney’s decision to introduce a new ad-supported payment tier for its popular streaming service follows the lead of rival Netflix, which launched its own ad-supported plan in November.

The move comes after a tumultuous year for Disney, which saw the reinstatement of longtime CEO Bob Iger in November after the company posted Q3 losses. Disney’s direct-to-consumer division suffered in particular, posting a $1.5 billion loss even as subscription numbers increased. Iger has made increasing profit margins for Disney+ a priority, arguing that the company should cut its production cost.

The cost of Disney+’s ad-supported tier subscription is in line with most other streaming services, such as HBOMax, Peacock, and Netflix, which all offer streaming plans with ads for under $10 a month. This market shift toward more diversified revenue sources comes after stagnant subscriber growth across the industry. As Iger looks to right the ship and aggressively increase profit, expect more changes in store for the future of Disney+.

Charted: streaming market’s most powerful players

datawrapper-chart-QUlJd


Key dates in the rise of streaming platforms

September 2008: Amazon debuts Amazon Video on Demand, an online streaming service that would eventually become Prime Video. Amazon Studios, the in-house production company responsible for original content, launched two years later.

March 2008: Hulu is founded, with AOL, NBC Universal, MSN, Myspace, and Yahoo! as initial distribution partners.

January 2009: Netflix, a mail-order DVD service, introduces online streaming for a limited number of movies and television shows.

February 2010: HBO launches an online streaming service for its cable subscribers to watch content on their laptops and mobile devices called HBO Go.

November 2019: Disney launches Disney+, a streaming service that would combine Disney, Pixar, Marvel, Star Wars, and National Geographic catalogs. Additionally, Disney acquired 21st Century Fox, giving it a 60% stake in Hulu.

November 2019: Apple unveils streaming app Apple TV+. Similar to Disney+, Apple TV+ only releases original content.

July 2020: NBCUniversal launches Peacock, featuring content from NBC Studios, while HBO GO pivoted to HBO Max, showcasing original movies and shows as well as third-party content.

January 2021: Netflix reaches 200 million subscribers, cementing its position as the most popular streaming service.

March 2022: Apple TV+ becomes the first streaming service to win Best Picture at the Oscars, with the original film Coda taking top honors at the Academy Awards.

Quotable:

“Spending money with abandon all in the service of building sub numbers is in our view deeply flawed.” —Warner Bros. Discovery CEO David Zasalv, in an earnings call after posting a $2.8 billion net loss in the most recent fiscal quarter.

Streaming habits, by the numbers:

23%: How many Disney+ subscribers are expected to opt for the cheaper, ad-supported plan
5 hours: The average American spends 4 hours and 49 minutes watching streaming video every day
87%: The number of US households that have video streaming service subscriptions

All eyes on Netflix

Netflix is just getting started with the deployment of its first ad-supported tier in November, but it doesn’t plan to stop there. According to CEO Ted Sarandos, multiple new payment tiers are in development, as the company aims to boost revenue amid increased competition. Currently, Netflix charges $6.99 for a basic plan with ads and $9.99 for an ad-free plan. There are also more expensive plans with an option for simultaneous streaming on multiple devices.

As monthly fees fluctuate, Netflix is hoping its continued investment in premium content will keep its subscriber base stable, as well as spur new subscribers in developing markets globally. Season four of the 80s-themed Stranger Things became the second Netflix show to pass one billion hours streamed, and the platform has also found recent success with surprise-hit Wednesday, a spin-off of the Addams Family, which is on track to become the third-most streamed series in Netflix history. Additionally, the company hopes to build on the buzz with the much-anticipated Harry & Meghan, a 6-part docu-series about the couple produced by the Duke and Duchess of Sussex themselves that premieres on Thursday (Dec. 8).

Despite a recent stumble in earnings, Netflix has consistently been the most profitable streaming service. After posting subscriber losses in the first half of 2022, the company was still able to beat revenue expectations.

Now that streaming services have become a permanent fixture in the homes of millions of Americans, the question of profitability will take center stage. This likely means price hikes across the industry, more ads, less money spent on original programming, and, for its competitors, trying to catch up to Netflix.

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