Disney+ Enters Advertising Arena, Leaving Apple TV+ As Only Commercial-Free Player Among Recent Streaming Entrants

Disney + Basic, a cheaper version of the 3-year-old streaming service, has officially gone live.

Today's launch of the $8-a-month offering marks a turning point in the larger streaming race, leaving Apple TV+ — for now — as the only major player without commercial interruptions. When once-and-current Disney CEO Bob Iger and his senior team began making a series of moves years ago to prepare for the push into streaming, the template was Netflix, which avidly insisted for years it would never sell ads. Now, while Netflix remains the global leader with 223 million subscribers, it faces intense competition and Co-CEOs Reed Hastings and Ted Sarandos have publicly lamented that the company dithered before finally launching their own ad-supported effort last month.

Apple, meanwhile, has been exploring a less expensive tier with ads. Its entry-level version would reportedly go for $5 a month, offering an onramp for inflation-hit consumers after Apple's steep 40% monthly price increase kicked in this month. Since entering the direct-to-consumer streaming market in 2019, Apple has never disclosed any specific subscriber or viewership numbers, though the tech giant has appeared to gain traction with series like Ted Lasso and Severance and films like Coda , which won an Oscar for Best Picture.

As for the rest of the field, HBO Max, Paramount+ and Peacock all have versions both with and without ads, while the sports push by Amazon's Prime Video has turned it into a streaming-ad heavyweight. (Streaming extensions of premium networks like Starz and Showtime remain, per their original pay-TV consumer proposition, ad-free.)

Disney's new tier features 100 advertisers at launch and about 4 minutes of ads per hour, slightly less than the industry norm. Along with the new plan, Disney is also offering additional bundles. "Duo Basic" pairs the lowest tiers of Disney+ and Hulu for $9.99 a month, while "Trio Basic" groups the aforementioned duo with ESPN+ for $12.99. (The widely successful Disney Bundle, which rolled out in 2020, will now cost $19.99 for the ad-free version, while stand-alone Disney+ without ads is rising to $10.99 as of today.)

The expansion of Disney+ builds on a strong foundation in Hulu, the Disney-run service which had a free, ad-supported plan from its launch in 2007 until 2016. Once it started charging for subscriptions and then added its live TV bundled plan, Hulu's subscription business eclipsed advertising, but ad revenue still totaled $3.4 billion in fiscal 2022. Netflix execs have unabashedly cited Hulu as their model, with many Wall Street analysts projecting a multi-billion-dollar ad business in the coming years.

Subscriber momentum has not been a problem for Disney+, which added another 12.1 million paying customers last quarter to reach 164.2 million. The cost side has been far more of a concern, with executives warning during previous CEO Bob Chapek's ill-starred final conference call with Wall Street analysts that profit and revenue would grow only by single digits in fiscal 2023. That large step-down from projected double-digit gains followed a surge in expenses, a trend Iger & Co. are working to reverse. The introduction of Disney+ Basic is seen as a way to leverage back-end technology currently used on Hulu to bring a new set of options to advertisers. Last May, during Disney's upfront presentation to ad buyers, Chapek said Disney is "unrivaled" when it comes to "storytelling, innovation and authority to deep emotional connections to audiences across all demographics." Buyers on Disney+ would effectively be gaining access to an ecosystem spanning theme parks, TV, film and other platforms, he said.

Michael Paull, president of direct to consumer for Disney, said today's launch will enable the company to "deliver greater flexibility for consumers to enjoy the full breadth and depth" of Disney offerings. Added Disney ad chief Rita Ferro, "We are committed to connecting our clients to the best storytelling in the world while delivering innovation and viewer-first experience in streaming now and in the future."

While optimism is running high at Disney, despite the tumult of recent weeks, which saw Chapek and streaming deputy Kareem Daniel ousted as Iger returned to run the company, Wall Street is a bit more circumspect. (After a brief rally on the Iger news, shares have continued to bump along not far above their multi-year low point, breaking even today in the range of $92.

Many analysts see near-term upside in the second price hike of ad-free Disney+ in the past two years, while ad gains could take a bit longer to materialize. In a research note this week, Michael Morris of Guggenheim cited the "anticipated effectiveness of price increases and cost controls at the company's direct-to-consumer segment" as a key reason for his "buy" rating on Disney shares. MoffettNathanson's Michael Nathanson, who also rates the stock "outperform" (or "buy"), considers Disney "a very different company existing in a very different world" compared with its initial go-go months in the streaming game. Even so, in the bigger picture, linear TV declines and the uncertainty surrounding theatrical moviegoing are far bigger concerns than streaming, as Nathanson sees it.