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Disney+ Launches Ad-Supported Subscription in Bid to Bring Streaming to Profitability

The new tier features 100 sponsors across major categories

Disney+ on Thursday launched its ad-supported subscription offering in the U.S. as it aims to bring its streaming businesses into profitability.

Disney+ Basic includes advertisers from more than 100 brands, Disney advertising president Rita Ferro said in a statement. “We are committed to connecting our clients to the best storytelling in the world while delivering innovation and viewer-first experiences in streaming now and in the future,” Ferro said.

The entertainment giant said last month it added 12 million subscribers in the most recent quarter, bringing streaming subscriptions to 164.2 million. That trails Netflix, which has 223.09 million.

But without ads, Disney+ has been underperforming on average revenue per user, at just $6.10 per user, as The Wrap reported Monday.

Disney’s streaming services, which also include ESPN and a 66% ownership share of Hulu, posted a $4 billion loss for the 2022 fiscal year that ended Oct. 1, the House of Mouse said in its annual report, released last month.

The ad-supported tier is backed with placements from all of the major agencies, Disney said in its release. Advertisers will come from more than a dozen categories, including retail, autos, financial services, technology and travel.

The new basic plan will cost $7.99 per month and provide access to all Disney+ streaming content, including original series like “The Mandalorian” and its library of films from the Star Wars, Marvel and Disney catalogs.

Additional tiers combine with Hulu for $9.99 per month; with Hulu and ESPN+ for $12,99 per month and with those services plus live TV for $69.99 per month. Bundled and multiproduct streaming offerings account for over 40% of Disney+ subscriber content, CFO Christine McCarthy said during the company’s fourth-quarter conference call.

Because the ad-supported service is launching more than two months into the quarter, she said,
it is not expected to provide a “meaningful financial impact” until later in the fiscal year. She called the quarter ended Sept. 30 “the low point,” adding, “It will improve from here.”

McCarthy said the company expects streaming to be profitable in at least some quarters in the next fiscal year, but not for the year.

Earlier this month, Disney raised prices for its premium ad-free supported subscriptions by $3 to $10.99 per month.

McCarthy told analysts the ad-supported launch and ad monetization growth are expected to drive profitability gains, but also noted concerns about the economy amid concerns of a possible recession. “We really have to keep the health of the consumer in mind when we think about achieving all of our goals this upcoming year,” she said during the quarterly conference call.

The long-awaited launch comes two weeks after Disney’s bombshell announcement that Bob Iger returned to the CEO chair and that his hand-picked successor Bob Chapek was gone amid disappointing results and weak stock performance.

Disney shares gained less than one percent to $92.46, in line with modest gains across the broader market, in midday trading Thursday.