Was Disney+ right to introduce an ad-funded tier?

Is ad-supported the right option for Disney+? / Disney

Last week (March 4) Disney said it would introduce a cheaper ad-supported tier to its streaming service to help it reach its hefty target of 260 million subscribers by 2024.

This decision to bring ads to Disney+ reflects the industry’s shift away from ad-free streaming to a mixed AVOD/SVOD ecosystem. Even Netflix’s chief finance officer Spencer Neumann teased “never say never” when asked about the company’s long-standing stance against ads.

As the other legacy media players such as NBCUniversal, Discovery and the recently re-branded Paramount (formally ViacomCBS) open their fledgling streamers to advertisers, it begs the question – will consumers like it?

Media research firm LightShed explains that Disney’s decision is “premature.” “Honestly, it just feels too early to be contemplating ads on Disney+,” a spokesperson says. Disney should instead be focused on driving usage. “Lowering price and jamming in ads doesn’t feel like the answer to driving usage – if anything, it feels like it will have the opposite effect.”

Disney+ came out of the gate strong in January 2020, gaining 26 million subscribers in its first quarter. But since then subscriber growth has slowed a little, a factor Matt Evenson, TV and online video research analyst at Omdia, credits to a natural lull after entering the market with such a strong performance.

Evenson says the ad-supported move “is an attempt to relieve some of the pressure they are coming under from investors and Wall Street for a slowing down of sign-ups.”

“Now it looks like the ceiling has been reached, investors are getting nervous,” he adds.

Is AVOD the right decision for Disney?

LightShed claims that ad breaks on streaming sites “give viewers time to disengage with the service and get distracted,” raising concerns that a weaker viewing experience could lead to a higher risk of churn. The rise of ad-supported could end up pushing audiences further towards the likes of Netflix and Amazon as audiences seek a better viewing experience, LightShed says.

It’s “human nature” for consumers to tolerate a worse viewing experience to save money, but to take away the cheaper option people will pay if they think the content is worth it? “So why is Disney unwilling to bet on themselves that they can create enough must-have content that people will subscribe to at any price?” LightShed questions.

LightShed adds that once you introduce ads, it will always feel harder to raise subscription price rather than just adding an extra ad-spot each break. This forces companies to increase ad-load, and in turn disengage viewers even further – the very factor that pushed consumers to SVOD in the first place.

Scott Schiller, chief commercial officer at Engine, has confidence in Disney’s advertising infrastructure to incorporate ads into Disney+ in an authentic and non-intrusive way.

“It’s going to come down to the devil’s in the details and how they do it,” Schiller adds. “I’m not sure ads in the middle of Star Wars is going to go down well with that audience, but a Star Wars channel that has relevant advertising around the channel might.”

He urges Disney, and its VOD competitors, to introduce “contextual advertising” and ensure brand partnerships are done in a “respectful” way to ensure consumers will accept them around premium video.

The mix of AVOD/SVOD looks to be the dominant streaming model moving forward, with the likes of ITV betting big on the future of a blended service with the launch of its ITVX streamer.