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Disney+ with Ads Will Be a Huge Hit — and Spur 37 Million Subscription Downgrades

New data from research company Kantar has Disney+ bracing for a big change.

"The Santa Clauses" on Disney+

“The Santa Clauses” on Disney+

Courtesy of Disney+

Disney+ is adding ads tomorrow, and the new revenue stream is much-needed for the (again) Bob Iger-run company, which lost $1.5 billion from streaming alone last quarter. Disney+ with ads is actually expected to be a bigger hit, financially speaking, than Netflix Basic with Ads.

According to new data from research company Kantar, a poll of more than 20,000 streaming users found that, when presented with the new, cheaper option, 22.8 percent of what the analysts call “loyal” subscribers downgrade to a plan with ads. This is what is known as a mixed blessing.

For Disney+, which had 164.2 million global subs at the end of the September quarter, that means we should expect roughly 37.44 million will downgrade from SVOD to AVOD. Applying the same math to Netflix, 50.86 million of its 223.09 million global paid subscribers may be enjoying — or about to enjoy — Basic with Ads; Netflix does not break its memberships down by plan. The $6.99-per-month “Basic with Ads” launched in the U.S. on November 3.

While the many millions who downgrade will pay a lighter subscription fee, it is the ARPU (average revenue per user) that truly matters to a streamer’s bottom line. With AVOD, generally speaking, companies charge less (but not nothing) for a subscription and expect to make up the difference via advertising. In a perfect world, they’ll make up the difference and then some.

In June, media analysts at Moffett Nathanson estimated Netflix could generate $1.2 billion in U.S. advertising revenue by 2025; Disney+ could see $1.8 billion in ad revenue that same year. (Netflix more than makes up the difference via subscriptions.) At that point, Moffett Nathanson believes 70 percent of an estimated 53 million domestic Disney+ subscribers will be on an ad-supported tier. Over at Netflix, analysts expected just under 20 percent of an estimated 75.6 million subscribers to be watching ads.

“Netflix has already established really high recurring [ARPU] and doesn’t need to create a spin-down opportunity for their customers,” Michael Nathanson told IndieWire at the time. “In contrast, the other platforms need advertising to lower the cost of their streaming prices to customers.”

Disney+ with ads launches in the U.S. on Thursday. It will cost $7.99 per month — what the ad-free option cost in the lead-up to the AVOD announcement. The monthly cost for commercial-free Disney+ will be jacked up to $10.99.

“With our new ad-supported Disney+ offering and an expanded lineup of plans across our entire streaming portfolio, we will be providing greater consumer choice at a variety of price points to cater to the diverse needs of our viewers and appeal to an even broader audience,” Kareem Daniel, who at the time was chairman of Disney Media & Entertainment Distribution, said in August. “Disney+, Hulu, and ESPN+ feature unparalleled content and viewing experiences and offer the best value in streaming today, with over 100,000 movie titles, TV episodes, original shows, sports and live events collectively.”

And then Daniel’s boss, Bob Chapek, was abruptly fired and replaced by Iger, his predecessor. Daniel lasted all of one day beyond Chapek.

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