Is Disney+ Preparing to Raise Its Ad-Free Prices with Launch of Ad-Supported Tier?
On Wednesday, Disney announced that its flagship streaming service Disney+ added 7.9 million subscribers in the first three months of 2022 bringing its total worldwide subscriber count to 137.7 million.
Along with Hulu’s 45.6 million subscribers and ESPN+’s 22.3 million, Disney’s combined streaming services now boast 205 million customers, just 16M shy of Netflix’s 221 million.
As the House of Mouse looks to further encroach on Netflix’s global streaming dominance, Disney+ plans to launch an ad-supported tier later this year, hoping to attract budget-conscious consumers to the platform who might otherwise have avoided shelling out $7.99 per month for the service.
But in comparison to other streamers, especially Netflix, $7.99 is a pretty reasonable monthly fee. So in a call with analysts following Wednesday’s release of the company’s earnings report, Disney CEO Bob Chapek addressed the service’s current and future pricing structure.
“We launched with an extremely attractive opening pricepoint on Disney+,” he said, “and we’ve been very comfortable with the price-value relationship that we’ve offered … As we increase our content investment, we believe that that’s going to give us the ability, to adjust our price [to] maintain that strong value proposition.”
Numerous studies have shown that the value of Disney+ is in its specific, branded content that can't be found or authentically duplicated on other platforms. So, for the service to maintain its current base, it naturally will need to continue to invest in the types of content that appeal to its existing audience. But as they hope to expand their reach, Disney plans to focus even more on programming to draw in a wider audience.
The company has reported that it will spend $32 billion on content across all of its distribution channels in the 2022 fiscal year, and senior executive vice president and chief financial officer Christine McCarthy mentioned on the call that one-third of that total will go towards sports rights, while a large part of the remaining $21.5 billion will be dedicated to “general entertainment content.”
This means that the company will spend less on the expensive genre programming like Star Wars and Marvel that has dominated the streaming service to this point, and will focus instead on cheaper programming with a more universal appeal.
While these budget details were company-wide and not specifically tied to Disney’s streaming services, it does underline the investment priorities that the company is making in its programming across platforms, including streaming.
“Our world-class creative teams are focused on creating content that will drive subscriber growth in targeted segments, and deeper engagement across the platform,” McCarthy said. “This includes leveraging our existing intellectual property; we’re intent on creating new franchises — you saw that in ‘Encanto’ — and investing in general entertainment, local-language content, and sports rights.”
By focusing more on programming that appeals to wider audiences, Disney appears to be going all-in on expanding its subscriber base as quickly as possible. While Chapek has long touted the streamer’s goal of 230 to 260 million subscribers by 2024, the introduction of a low-cost option and even more family-focused content could help them reach that lofty goal.
“When we expand Disney+ across multiple pricepoints with this new Disney+ ad tier,” McCarthy said, “we are able to reach an even broader audience. We’ll create more avenues for consumer choice, and this is a consistent theme that you’ve heard from us having the — the consumer be our north star.”
Given that the company revealed that 50% of Disney+’s subscribers are households that do not have children, it does appear that there are multiple customer lanes that the streamer is attempting to cater to: One more concerned with low-cost, family programming, and another more interested in the ultimate genre entertainment experience.
To best meet the needs of these two divergent groups — and to maximize profits from each — it would not be a surprise for Disney+ to raise the cost of its current ad-free tier while also offering a cheaper ad-supported experience.
On Disney’s other major subscription video-on-demand (SVOD) service Hulu, they have long had options with and without ads. Currently, the ad-supported tier costs $6.99 while the ad-free option is $12.99. According to the Disney execs, while the numbers might not be the exact same, this price format will likely provide the blueprint for Disney+’s future plans.
“We will continue to evaluate what makes sense for the service in terms of pricing,” McCarthy said. “And, I will say that you can look to our experience with Hulu and their ad-supported tier; we believe that this will contribute to ARPU (average revenue per user) and we look at it, as something additive that will work towards achieving our long-term profitability goals.”
Chapek mentioned that the experience that Disney has with ad-supported streaming on both Hulu and ESPN+ has allowed them to be prepared to hit the ground running when they do eventually launch the Disney+ ad-supported tier this fall.
Not only does the company have the years of consumer spending data to inform them while making their pricing decisions, but they also have the technological and personnel infrastructure in place to make the transition seamless.
The years of investment and experience will ideally allow Disney to offer consumers a high-quality, ad-supported experience from Day 1, bringing in even more subscribers on the budget-friendly levels. But the company is clearly invested in providing the best streaming experience to customers, no matter what tier they subscribe to.
“We believe that we can sort of move up and cascade up our net price over time, given the tremendous value that we started with,” Chapek said. “The increased price-value relationship will evolve with new content, but we’re pretty bullish about that.”
So while neither Chapek nor McCarthy were willing to commit to a price for the ad-supported tier or an increase for the ad-free option, given the company’s history with Hulu, it would make sense that Disney+’s lower-priced tier would range from $4.99-$6.99 and the premium tier would be from $10.99-$12.99, most likely on the lower ends of both.
Given the current $7.99 rate, if the ad-supported tier was only $6.99, that likely would not feel like enough of a discount for many consumers, but going all the way up to nearly $13 for the ad-free tier could potentially be too much for existing customers.
Disney+
Disney+ is a video streaming service with over 13,000 series and films from Disney, Pixar, Marvel, Star Wars, National Geographic, The Muppets, and more. It is available in 61 countries and 21 languages. It is notable for its popular original series like “The Mandalorian,” “Ms. Marvel,” “Loki,” “Obi-Wan Kenobi,” and “Andor.”