Netflix and Disney Veer Towards Ad-Supported Subscriptions

Netflix and Disney Veer Towards Ad-Supported Subscriptions

Published: October 03, 2022

Both Netflix and Disney+ are introducing ad-supported subscription models in addition to the ad-free options they have relied on up to now. As rising inflation cuts into their customers’ bottom line and streaming competition intensifies, they hope to outmaneuver the rest of the industry by offering higher quality at a lower price.

As outspoken as Netflix was in its criticism of ads and ad revenue, it seems like the streaming giant is about to cave in under the threat of losing valued customers. As people have less money to spend, creature comforts such as streaming services tend to be the first to go, especially since it's necessary to pay for more than a single subscription in order to have access to all content.

Netflix and Disney+ plan to stay ahead of the curve by introducing ad-supported subscriptions in November and December, respectively. In theory, ad-supported subs should appeal to customers with less spending power, allowing them to access content at a cheaper price point while exposing them to advertisers. However, in the case of Disney+, the current unlimited access $7.99 offering will become infused with ads, while the ad-free experience will cost $10.99 per month.

According to an internal Netflix document, the company is expecting to gain 40 million ad-supported subscriptions by the third quarter of 2023. The revenue potential of ad-subsidized subscriptions is jaw-dropping. Statista forecasts that global television advertising revenue will reach $171 billion by the end of this year. In the US alone, advertising revenues from streaming could reach $30 billion in two years.

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More importantly, Netflix and Disney’s foray into ad-supported subscriptions is going to be a groundbreaking moment for advertisers, according to Samba TV senior vice president Dallas Lawrence.

"These launches are going to create the biggest premium advertising space in more than a generation," Lawrence said.

For advertisers, streaming services offer numerous advantages over linear television. Thanks to the abundance of data, advertisers will be able to target individuals, rather than vague groups of people. There’s also the potential to reach a global audience by advertising on one giant streaming service, as opposed to dealing with local channels or stations with limited reach.

Advertisers will finally regain access to lost “premium inventory” referring to all the viewers who’ve given up on “old-fashioned” television and replaced it with an objectively superior form of content consumption.

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The likely outcome of Netflix and Disney+ opening up their hundreds of millions of viewers to advertisers is a depreciating value of traditional TV ads. It will put pressure on television service providers who haven’t yet gotten into the streaming game to do so, or see their ad space value plummet.

Even major television networks in the US like Fox, CBS, and ABC will likely feel the consequences of ad money slowly drifting towards streaming services.

What Netflix and Disney+ are doing will shock the TV ad world to its core. We are certainly at the precipice of a new age in TV advertising.

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