Last week, Disney confirmed it was following Netflix down the ad-funded rabbit hole, with a new subscription tier in the US launching on 8 December, with plans for this to roll out globally in 2023.
Billed as giving consumers “more choice to consumers than ever before”, the new tier will replace the current Disney+ ‘basic’ at $7.99 a month. The ad-free tier that consumers currently view at that price will be bumped up to $10.99 a month.
Dismissing concerns that consumers will be put off in the long run, Disney CEO Bob Chapek pledged a “conservative” rollout of ad load in an earnings call with investors last week, citing the success of the format on Disney+ stablemate Hulu as a pointer.
“We are walking before we run in terms of seeing what the market will bear in terms of an ad load. So we're going in very conservative upfront. But we believe that there's probably going to be some more ultimate elasticity in that, as well as we go forward. By taking a conservative approach in terms of that ad load upfront, it will give us the ability to expand if we need to and not have to go the other way, which I think would be a much bigger deal.”
The move itself is not a surprising one – not least because Disney+ announced its intentions to incorporate ad support in its services earlier this year. But how does the introduction of an ad tier – at the same expense as for those who had previously enjoyed ad free viewing – weigh up for consumers who may be considering the value of their subscription services at a time of a cost-of-living crunch?
PMW spoke to industry experts to get their take on the future of ads and subs – can the two play together happily and how can marketers navigate the messaging mix?
“The overall package provides a net benefit while maximising value to content”
Dan Goman, CEO of cloud-native digital media supply chain and distribution platform Ateliere is clear: there is no ‘downgrade’ in service, providing there is choice. “I think this is a positive opportunity, if it's an opt-in option, so, for certain, consumers who don’t care for the advertising option can continue to view their content advert-free."
The new Disney+ tier will not be an isolated incident, he adds, citing ads woven into subscription or streaming services – with a premium to go ad ‘cold turkey’ – as the move of the future.
“It all comes down to optimising the experience for the various types of consumers against a backdrop of real-world costs for content. Some consumers will be more open to advertising than others, and if they are willing to accept the adverts, then they will be happier to have a discount on their subscription. In fact, the overall package provides a net benefit to them, while still maximising value back to content.”
“Desire to increase revenue – and heavy demand from brands to advertise”
Ads have been an establishment of TV viewing for as long as most of the Baby Boomer and Gen X generations (and beyond) can remember. As with Hulu, some free services already incorporate ads – and charge a premium to let you go ‘cold turkey’ on the interrupted viewing.
Where Disney+ has hit a talking point is that the current basic ‘tier’ will no longer be ad free, but the price remains the same. To lose the ads, subscribers pay more.
Aaron Goldman, CMO, Mediaocean sums up the reasoning and the uncertainties behind the latest iteration of streaming services on subscriptions.
He says: “The recent announcement of an ad-supported tier for Disney+ clearly reflects the company’s desire to increase revenues as well as heavy demand from brands to advertise on streaming platforms. What’s not quite as clear is how consumers will respond to commercials in what was previously an ad-free environment.”
“The one size fits all subscription model no longer dominates”
Alex Hole, Vice President of Samsung Ads Europe, highlights the transformation of the TV landscape for advertising.
“The TV landscape has been transformed over the last decade as streaming services emerged onto the market. With a growing number of households facing increasing financincial pressures, we are starting to see an evolution, where the one size fits all subscription funded model no longer dominates entirely. As we face a rising cost of living crisis in the UK, and viewers across the globe are faced with multiple subscription packages to access the content they want, in the first quarter of this year 1.51m subscription packages were switched off, with half a million of these cancellations attributed to money-saving.
“Ad-supported services or options are almost an inevitability to help serve the consumer’s desires for new and varied content, which the subscription funded model is no longer able to achieve alone. This is a trend that will continue as publishers battle to keep eyeballs on their content, with consumers both navigating the proliferation of entertainment on streaming services, which is increasingly including gaming and feel the pinch on their purse strings.”
“Disney+ still regards content – not cost – as its differentiator”
James Collins, Senior Vice President – Media Networks, Rakuten Advertising brands the move from Disney+ a “risky bet”, at a time where the inevitable tightening of belts in these high inflation times has meant demand shifting towards free ad-supported streaming and on demand services – as a substitute for subscription video on-demand.
“Considering many households have been paying for the same service without ads for a significant amount of time, this move will frustrate and alienate some legacy customers.
But Collins adds that Disney+ is looking to the view that customers who are happy to view ads will remain in the fold, as long as they come with content that increases in quality and frequency.
“This platform benefits from a higher subscriber advocacy than competitors looking to roll out a similar AVOD proposition, such as Netflix and HBO MAX. However, it’s a risky bet that this will continue and Disney+ will need to lean heavily on continued interest in flagship franchises such as Star Wars.
“While the ad-supported tier that Netflix announced earlier in the year was marketed as a lower cost alternative amidst price hikes, Disney+ still regards content – not cost – as its key differentiator. A content-first strategy can perform well if platforms like Disney+ can translate high-profile releases into new subscribers and advertising partnerships.”
Ad-supported streaming: the frontier for marketers?
Chapek told investors in an earnings call last week that “since the launch of Disney+, advertisers have been asking for the opportunity to connect with audiences alongside the most premium brands in content and streaming”.
From the perspective of ‘subscription numbers’, Disney is also riding high, topping Netflix for the first time by hitting a hefty 221 million subscribers globally – according to its fiscal results for Q3 released last week.
At a time when competitors are possibly raising their eyebrows when they cast a glance over their own numbers, Disney+ itself added 14.4 million subscribers to its fold in the quarter alone, meaning that the service boasts 152.1 million subscribers in the year to 2 July, up almost a third on the previous year.
The ad-supported tier will be part of a suite of subscription rollouts across Disney+ and stablemates Hulu and ESPN+. – and both Hulu and ESPN+ subscribers will see price rises come into effect next week. Hulu and ESPN+ also saw healthy year-on-year rises in their streamer numbers in the Q3 announcements – to 46.2 million and 22.8 million respectively.
Goman says of the demand potential: “Coupling advertising supported content with a subscription component should also mean advertisers will have the potential for their adverts to be seen alongside earlier content than historically was the case. For example, HBO, or Netflix, has always had the earliest window on an exclusive basis and prior to advertising supported windows. Now adverts have the potential, at least, to appear earlier in the content life cycle.”
An eye on consumers
With many an eyebrow raised over reiterating the value of a subscription service for almost anything these days, it’s little wonder that some highlight the churn figures alongside those that show growth.
Audience insights firm GWI cites its recent research showing that the average number of streaming services people subscribe to globally has gone down from 3.4 in 2020 and 2021 to 2.6 in 2022, while in the US, the number that feel streaming subscriptions are getting too pricey has grown by 50% since Q2 2020.
Stephanie Harlow, Trends Analyst at GWI, said of the research of almost 40,000 UK and US respondents: “Brands need to give people a reason to sign up and existing subscribers need a reason to stay. With the cost-of-living crisis hitting people hard, offering cheaper services might mean more subscribers will keep their streaming services.”
But Hole is adamant that consumers will catch on: "The streaming giants dipping their toes into ad-supported models is a very encouraging sign for the industry as a whole. As more players get into this landscape, more marketers will invest and the space will innovate even faster as a result. Most importantly it’s great for the consumer.
"Streaming services did not revolutionise the TV landscape by introducing ad-free viewing, but through delivering world class content and empowering audiences to consume content in innovative ways - providing the viewer with ultimate control over when and how they watched their favourite content. The consumer is ready for the return of ads to their content experience, so long as it does not erode their content consumption experience.
He adds: "Our recent research with market research agency Verve looked into how receptive consumers are to ads - and revealed that audiences are already engaging with ads well in streaming environments. Critical to how consumers engage with ads in these environments is how relevant the ads served are to the viewers, with 63% saying that this would be a major factor in how willing they were to watch ads. Hence it’s critical that advertisers and publishers have access to premium insights which allow for great quality ads to be served to the most appropriate audience and at the most appropriate times."
Ads in streaming services: the marketer toolkit
So how can marketers harness the opportunity that the optimism from Disney+ seems to provide?
Goldman says: “The key to success for all stakeholders will be unique ad formats that blend the storytelling magic of Disney and the rich data within the Disney+ platform. The result should be highly targeted and personal ads that elicit emotional response and drive business outcomes.”
Goman adds: “Recession fears and inflationary concerns would seem well poised to be something of a catalyst for adoption of this hybrid advertising/subscription approach. The addition of advertising tiers will serve to reduce the corporations' perceived need to raise subscription pricing.
Hole points to the infancy of the AVOD market for opportunity.
“Additionally, the consumer tolerance for advertising will likely be higher against a challenging economic backdrop than it would be for subscription increases, and maybe the overall offer will combine to help mitigate churn from the SVOD offer that might otherwise occur.”
The AVOD market is in its infancy in the UK and therefore presents a new opportunity for marketers to extend their reach and reach new audiences too. As our research demonstrates, the viewer is ready for this new phase of the TV ecosystem where advertising once again becomes a major part of the content experience, as has remained the case in traditional broadcast settings."
The moves on marketing mix and investments
Goman believes that “we will see a reallocation out of advertising supported media spend from online channels such as Peacock or YouTube rather than linear spend such as broadcast or cable channels.
“Should the returns be strong then we will likely see further allocations and even fresh money brought in from there.”
Collins points that any moves to advertising on connected TV is often not a matter of lift and shift with budgets, but “increasing ad spend at strategic moments”, including amid high profile content releases and anticipated viewer spikes.
“On the flip side, as brands look to balance their commercial objectives with the realities of inflation, a contextual targeting approach on CTV will enable them to scale and pull back ad inventory.
“Being sensitive to changing circumstances and tailoring messages where appropriate will likely appeal to a target audience and increase resonance.”