Disney has announced that its streaming service will get a new, ad-supported tier.
The new service will cost as much as the existing, ad-free Disney Plus – $7.99 (£6.50) per month – while the tier without ads will be increasing in price to $10.99 (£8.99) per month.
The company claims that the price increase will help it “provide greater consumer choice at a variety of price points to cater to the diverse needs of our viewers and appeal to an even broader audience,” according to Kareem Daniel, the chairman of Disney media and entertainment distribution.
Ads will not run on children’s profiles, and in general there will be a “lower ad load and frequency to ensure a great experience for viewers,” according to executives.
The launch of the new tier is not unexpected – having said earlier this year that it would be coming in late 2022 – but keeps it competitive with Netflix, which is also in the process of launching an ad-free version.
However, while Netflix lost a million subscribers in the last quarter, Disney+ gained 14.4 million users. Disney+ now has 221.1 million streaming subscribers, compared to Netflix’s 220.7 million.
Netflix has had to add an ad-supported tier as subscribers and revenue falls. The streaming giant lost 200,000 subscribers during the first three months of the year due to stiffer competition and rising inflation that has pressured household budgets.
But while “the vast majority of what people watch on Netflix” can be included in the ad-supported tier, the company’s co-chief executive Ted Sarandos said, “there are some things that don’t – that we’re in conversation about with the studios on”.
It is not clear what content will be on the tier, which launches next year.
That said, Disney+ is still losing money. It reported a loss of $1.1bn in the quarter. Disney itself is still making enormous profits, though, with $1.41bn coming in over the past three months.
“There’s no more denying that competitive choice is causing Netflix headwinds while Disney+ rides the tailwinds,” said Mike Proulx, vice president of research company Forrester. “This tells us that consumers who are even more price conscious right now are having to make tough choices on where to invest their streaming budgets based on the value they’re getting in return.
“It’s critical that Disney+ keeps pace with a compelling content slate in the back half of this year in order to justify not only its continued expense but a steep price hike in December.
“There will be zero cost savings for Disney Plus’s ad-supported tier, and it’ll actually cost $3 more to continue with an ad-free experience. This is a questionable marketing choice during a time when consumers are feeling an extra financial pinch that might only get worse come 2023.”