Disney’s advertising tier was officially launched on Thursday as the media giant seeks to rein in accelerating streaming losses.
“We expect Disney to generate between approximately $500 million and even up to $1 billion in ad-supported revenue from the Disney+ product in its first year of operation,” said Geetha Rangathan. , analyst at Bloomberg Intelligence, to Yahoo Finance Live.
Rangathan said ad-supported revenue would grow by up to $3 billion over the next three years, reiterating his confidence in the media giant amid its early streaming success.
“This is a company that has added around 40-45 million subscribers year over year on its Disney+ product – that’s just staggering growth, and it’s expected to grow even further with this new ad-supported level. .”
Revenue for Disney’s direct-to-consumer division has grown over the years amid rising subscriber numbers. For the year 2020, DTC’s revenue was $10.55 billion before climbing to $16.32 billion in 2021 and $19.56 billion in 2022. Disney’s DTC unit grew from $2.36 billion in 2020 to $3.73 billion in 2022.
The new deal – which comes a month after the highly anticipated ad-supported Netflix (NFLX) debut – costs $7.99 per month, $3 less than the ad-free version of Disney+ which now costs $10.99 per month.
The ad load will be conservative at first, around 4 minutes of ads per hour or less, according to the company. That’s about half Hulu’s 8-minute-per-hour ad load and even less than linear TV’s 15-minute-per-hour norm.
Disney added, at least for now, that there will be no ads containing alcohol or competing content, as well as no political ads.
According to a new study by Kantar Research, roughly 1 in 4 current Disney+ subscribers will upgrade to the ad-supported version, which equates to roughly 46 million of the streamer’s 164 million users.
Rangathan, meanwhile, suggested that 20-30% of the US subscriber base could drop, although that number could increase given the success of Hulu’s advertising level.
“Nearly 70% to 75% of Hulu’s subscriber base is on the ad-supported version, so ads have been a huge hit with Hulu,” the analyst said. “I think it will be a little different with Disney+, but we can expect to see at least a third of the user base convert to this ad-supported product over time.”
Industry experts argue that offering lower-cost, ad-supported options is still an important protection against churn – something all streamers want to avoid amid increased competition.
Iger’s turn to profitability
As Disney seeks to capitalize on its publicity streak, recently returned CEO Bob Iger hopes the debut can help dampen adverse investor sentiment as Disney shares have fallen more than 40% since the start of the year.
In its last fiscal year, losses from Disney’s direct-to-consumer unit, which includes Disney+, Hulu and ESPN+, totaled $4 billion.
Iger, who spoke to employees at a company-wide town hall last week, noted that a strategic shift toward profits is currently underway, revealing that he is currently only no plans to reverse the hiring freeze Bob Chapek put in place earlier this month as he continues to assess Disney. current cost structure.
Alexandra is a senior entertainment and media reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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