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Disney+ launches a cheaper ad-supported version

Disney+ launches a cheaper ad-supported version

Disney+ will soon be available at a reduced price, but you’ll have to sit through commercials.

The Walt Disney Company said Friday it would introduce an ad-supported version of its Disney+ streaming service in the United States late this year, with plans to roll it out overseas in 2023. The move reflects the hot market for streaming ads, pressured Disney to keep the streaming business growing and a broader trend among media companies to try to rebuild the traditional TV ecosystem online.

But a lower-priced Disney+ carries risks, including potentially faster declines in some of Disney’s cable networks.

Disney has not yet set a price for subscriptions. The ad-free version, introduced in 2019, costs $8 a month. Although the streaming market is changing rapidly, competing services charge 30 percent to 40 percent less for their ad-supported alternatives. (For example, Paramount+ charges $5 a month for “limited commercial interruptions” and $9 a month for no ads. HBO Max with ads runs $10 a month, and HBO Max without is $15 a month.)

The Information, a technology and media news site, reported Thursday that Disney was discussing an ad-supported option.

“Since launch, advertisers have been clamoring for the opportunity to be a part of Disney+ and not just because there is a growing demand for more streaming inventory,” Rita Ferro, president of ad sales at Disney Media and Entertainment Distribution, said in a statement. Disney’s announcement comes as the company prepares for the television industry’s traditional “advance” ad sales season.

By offering an ad-supported version of Disney+, Disney joins rivals such as WarnerMedia, Paramount Global and NBCUniversal, which all offer tiered subscription prices based on how many ads are served to viewers. (The big exceptions are Apple TV+ and Netflix, which have repeatedly said they have no plans to get into advertising.) Disney’s own Hulu has ads.

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But advertising is a unique risk for Disney+ because of the company’s dominance in children’s television. For decades, the Disney Channel, the company’s flagship cable network, has marketed itself to parents as a safe place. It has no advertising, even in programming aimed at older children (unlike Nickelodeon).

Some areas of Disney+ will likely remain ad-free, regardless of subscription plan; the service, for example, has a lot of content for children of pre-school age. But the line can be blurred. Ferro cited Pixar as a brand that advertisers wanted access to.

Some analysts questioned the timing of Disney’s announcement. “Does the undergrowth bacteria?” Richard Greenfield, a founder of research firm LightShed Partners, wrote on Twitter, referring to subscribers. “Lots of content coming, why cut the price now.” Mr. Greenfield and others also wondered whether the move could be a precursor to combining Disney+ and Hulu. In early trading on Friday, Disney shares were down about 4 percent, at $140.

Kareem Daniel, chairman of Disney Media and Entertainment Distribution, positioned a cheaper, ad-supported Disney+ alternative as “a win for everyone — consumers, advertisers and our storytellers.” Disney said the offer was “a building block” in the company’s promise to Wall Street that Disney+ will have 230 million to 260 million paid subscribers by 2024. Disney+ added 11.8 million subscribers worldwide in the latest quarter to reach 129, 8 million.

Disney’s streaming division lost about $600 million in that quarter — about 27 percent more than a year earlier — due to costs that included content production, marketing and technology infrastructure. The company said last month that spending on streaming programming in the current quarter (for Disney+, Hulu and ESPN+) would increase by $800 million to $1 billion.

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Disney has told investors that the division will be profitable by 2024. To achieve that, the company has been aggressive in shaping its streaming portfolio in the image of its old-school cable TV business. That includes generating revenue from both subscriber fees and advertising sales and selling the services as a package. Last year, Disney began requiring some Hulu subscribers to also grab Disney+ and ESPN+. This type of bundling is what has made cable so profitable for media companies for decades.

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