Disney Plus to offer an ad-supported tier in 2022

The amazing success of Disney Plus is well-deserved and anything but accidental regardless of the COVID-19 pandemic — now that the streaming entertainment market seems to be returning to some kind of normality, though, Disney will have to make new moves in order to maintain momentum and take advantage of that early success. Disney Plus managed to attract more than 130 million subscribers so far in a surprisingly short amount of time, but Netflix is at more than 222 million, meaning that if the former means to compete with the latter on a customer base level, it has a lot of ground to cover. There are a number of ways that could help Disney achieve this and a few hours ago the company announced one such way.

Disney Plus will offer a new, lower-cost tier to the US and Canada markets at some point “in late 2022” (a specific date was not disclosed) that will be supported by ads. To all other countries where Disney Plus is or will be available — of which there will be many more by late summer — the new tier will be offered in 2023. Disney’s other entertainment subscription offering, Hulu, has always featured ads but Disney Plus is meant to be a premium service and many (yours truly included) thought that the company would refrain from adopting the same model with that one so soon. Apparently, we were wrong.

Ads in streaming services are not particularly liked by consumers, making for a risky choice overall. There’s a reason why Netflix has not even considered ads yet, opting to regularly increase its subscription costs instead (despite the backlash that always follows). One of the main reasons “cord-cutting” — the use of streaming services instead of traditional television network programming — became so popular is the very absence of commercials during TV shows and movies in the former, after all.

Nobody knows what form these ads in Disney Plus will take, but they will likely resemble Hulu’s, which in turn largely follows the live TV model: an initial string of commercials (up to four or five short ones) before the start of a film or episode, plus more commercial breaks depending on the duration of said film or episode. Television networks usually do a commercial break every 22 minutes for 8 minutes, which can be pretty annoying to most viewers (especially during movie watching). Hulu runs fewer ads than that per episode or feature film, most of the time, but they still feel disruptive and traditional-TV-like.

For $6.99 a month, though, a lot of consumers seem willing to put up with ads in order to have access to Hulu’s library — which leads to the obvious question: how low can Disney Plus go with its ad-supported tier? Hulu’s ad-free tier currently goes for $12.99, so almost half that for the ad-supported one seems like a good deal to many. Disney Plus is asking for just $7.99 a month for its ad-free tier right now, which is already a pretty good deal compared e.g. to Netflix’s lower tier, so how much can that cost be reduced while still meaningfully contributing to Disney’s bottom line?

As many analysts have argued in the past, Disney Plus does not necessarily have to catch up to Netflix in subscription numbers in order to be successful: it is a business venture costing a lot of money to Disney at the moment, but it is an absolutely necessary investment for the future of the company. All Disney Plus has to do mid-term — taking into account the high production cost of its exclusive content — is break even. For that to happen the service’s subscription base will have to grow significantly during 2022-2023, which is why the company has set a new goal for itself: attracting between 230 and 260 million subscribers by 2024. An ad-supported tier would probably help with that, but to what degree… well, we’ll all just have to wait and see, no?