Report: Ad-Supported Tiers Slow to Gain Traction for Disney+, Netflix

It may be time to tap the brakes on the Golden Age of Ad-Supported Streaming. A new report from Variety suggests that both Netflix and Disney+ are struggling mightily to bring viewers into their new ad-supported video-on-demand (AVOD) tiers, which launched in November and December respectively.

The Variety report cites a study fielded by SmithGeiger, which asked if streaming users were preparing to downgrade from an ad-free tier to an ad-supported plan. The survey found that just 5% of Netflix customers were planning to switch to the new tier with ads, and 6.5% of non-subscribers said they would subscribe to Netflix in the next month because of the new plan.

These are not the first rumblings heard that the new ad-supported tier at Netflix was not performing up to expectations yet. A report from December stated that Netflix was refunding some advertiser money, after being unable to meet its viewership projections for the first month of its new price plan.

Netflix has also begun making its ad-free Basic plan, which at $9.99 per month is $3 cheaper than the $6.99 ad-supported option, more difficult for new users to find when signing up. This has led to speculation that Netflix may discontinue Basic without ads, in order to drive more users to its more-lucrative ad-supported tier. The advertising dollars Netflix gets for having more users on that plan far outweigh the extra $3 per month it sees when people choose the next plan up.

The results were a little better for Disney+. Around 6% of Disney+ users reported they were going to downgrade from ad-free to ad-supported streaming in the next month. Only 19% of non-Disney+ users said they were “somewhat” or “very” likely to sign up for the ad-supported plan, while 57% said they were “somewhat” or “very unlikely to choose that option.

Streaming losses climbing past $1 billion per quarter were a big factor in Disney abruptly switching CEOs in Nov. 2022, and returning chief executive Bob Iger is now tasked with helping the company boost streaming revenues however possible. The slow start for the service’s ad-supported plan is not the way Iger would have chosen to begin his second tenure as CEO.

The survey also had important data for the streaming industry at large. The findings indicate that as of now, many users who are planning to downgrade to a cheaper ad-supported streaming tier are doing so in order to justify subscribing to another service, as well. This suggests that while ad-supported streaming may be the future of the industry, customers aren’t quite ready to accept it as the default mode of streaming video yet.

For now, industry analysts might want to slow down on their projections of multi-billion dollar revenue growth for Disney+ and Netflix over the next few years. Users need time to continue acclimating to seeing ads on services that have never offered them before, and streamers need to continue fine-tuning their ad-supported offerings to make them as attractive as possible to potential customers.