Disney+ with ads will be a huge hit and spur massive subscription declines

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 on streaming alone last quarter. Disney+ with ads is actually expected to be a bigger hit, financially, than Netflix Basic with Ads.

According to new data from analytics firm 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 subscribers at the end of the September quarter, that means we should expect about 37.44 million to 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 is ​​not phasing out memberships as planned. $6.99 per month “Basic with Ads” launched in the US on November 3rd.

While the many millions who downgrade will pay a lower subscription fee, it’s ARPU (average revenue per user) that really 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 will make the difference and then some.

In June, media analysts at Moffett Nathanson estimated that Netflix could generate $1.2 billion in US ad 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 the estimated 53 million domestic Disney+ subscribers will be at an ad-supported level. At Netflix, analysts expected just under 20 percent of its estimated 75.6 million subscribers to see ads.

“Netflix has already established really high repeatability [ARPU] and not have 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 streaming prices to customers.”

Disney+ with ads launches in the US on Thursday. It will cost $7.99 per month – what the ad-free option cost ahead of the AVOD announcement. The monthly cost of ad-free Disney+ will be jacked up to $10.99.

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

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

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