Why Disney+’s ad-supported model is a sign of the changing times

Disney has confirmed that it’s bringing an ad-supported version of Disney+ to Canada in November.

Prices for the streaming service, which is home to popular Marvel movies and series, as well as the expanding Star Wars universe, and audience favourites including Only Murders in the Building and The Bear, will range from $7.99 a month with ads, to an ad-free premium level of $14.99. Disney introduced an ad-supported version of the service in the US late last year, and it is also now being introduced in the U.K., Europe, and other markets.

“The launch of our ad-supported plan demonstrates the importance of providing subscribers with value and choice” said Jason Badal, Disney+ Canada VP and GM, in a release. “We are excited to bring this offering to Canadians and to our advertising partners across the country.”

The announcement coincided with news that Disney+ saw a 7.4% drop in its global subscriber base in the last three months. In the U.S. and Canada, Disney+ had 46 million subscribers, down from 46.3 million last quarter.

While Disney said it was “excited” to introduce the new options, the announcement, combined with the disappointing results, is being viewed as proof that the too-good-to-be-true pricing models of the early days of streaming were, in fact, too good to be true.

It’s becoming increasingly apparent that the streamers have to increase prices, cut costs, or monetize through advertising—or some combination of the three—to survive.

In the U.S., Disney is increasing its prices from $10.99 to $13.99 for the ad-free version—which launched at $6.99 in 2019—and has said it will crack down on password sharing. Those moves closely mirror those undertaken by streaming counterparts like Netflix.

In Canada, the basic ad-supported subscription plan for Disney+ allows for two concurrent streams, while the premium version allows for four concurrent streams.

CNN’s senior media reporter Oliver Darcy viewed Disney’s announcement as the end of an era. “The disruptive streaming model birthed by Netflix that dangled all-you-can-eat menus of films, shows, and endless entertainment without pesky advertisements for extraordinarily low prices came to an official close on Wednesday,” he wrote in an article headlined “The era of cheap streaming is officially over.”

While CEO Bob Iger acknowledged setting its launch prices low to reach as large an audience as possible in the early days, the ad-supported options now appear more profitable, said Darcy.

“The advertising marketplace for streaming is picking up,” Iger told investors on the quarterly earnings call. “It’s more healthy than the advertising marketplace for linear television. We believe in the future of advertising on our streaming platforms, both Disney+ and Hulu.”

However, The Wall Street Journal reported that Disney’s traditional linear TV business, which includes ESPN, ABC and some specialty channels like FX, are contributing to its financial challenges.

“Once a reliable engine of profit for Disney, linear TV has seen its operating income plunge in recent years as more consumers cut the cable cord and switch to streaming video as their primary source of home entertainment,” reported the WSJ.

“Disney dilemma underscores media’s existential crisis” was the headline on Sara Fisher’s story at Axios 

Disney and its Hollywood peers are under enormous pressure to make their streaming bets profitable,” she wrote. “Broadcast and cable networks have largely fueled those investments to date, but as cord-cutting intensifies, those cash pools could soon dry up.”

In an April article about challenges for the streaming subscription services, Fisher explained that increased competition in the space was forcing all the big players to consider cheaper ad supported options.

“Ad-supported streaming is lucrative because it can increase the average revenue per user,” she wrote. “Hulu, for example, makes much more money from users who subscribe to its cheaper ad-supported tier, which is what the vast majority of its subscribers choose.”

David Brown