• by Karlene Lukovitz  @KLmarketdaily, March 4, 2022

This story has been updated to reflect a Disney announcement made soon after the original article was posted on March 4.

Following a story in The Information that leaked the news, Disney on Friday morning officially announced that it plans to launch an ad-supported version of Disney+ in the U.S. in late 2022, and expand it globally in 2023.

The company did not reveal a specific launch date or the pricing for the ad-supported subscription.

"Expanding access to Disney+ to a broader audience at a lower price point is a win for everyone -- consumers, advertisers and our storytellers,” Kareem Daniel, chairman, Disney Media and Entertainment Distribution, stated in the announcement. “More consumers will be able to access our amazing content. Advertisers will be able to reach a wider audience, and our storytellers will be able to share their incredible work with more fans and families.”

“Since its launch, advertisers have been clamoring for the opportunity to be part of Disney+ -- and not just because there’s a growing demand for more streaming inventory,” added Rita Ferro, the division's president of advertising. “Disney+ with advertising will offer marketers the most premium environment in streaming with our most beloved brands, Disney, Pixar, Star Wars, Marvel and National Geographic. I can’t wait to share more with advertisers at the upfront.”

Disney is intent on achieving its goal of a profitable direct-to-consumer business by 2024. But the phenomenal subscriber growth Disney+ saw during its first two years is starting to slow, and an influx of somewhat lower-paying subscribers, combined with an advertising revenue stream, could help offset the spiraling costs of infusing streamers with original content.

Disney confirmed that it views the ad-supported option as "a building block" to achieving its target of 230 million to 260 million subscribers by 2024

In November, CEO Bob Chapek announced that the company, which had planned to spend between $8 billion and $9 billion on original content for Disney+ by its fiscal 2024, would increase that investment, primarily to pay for pumped-up production of local and regional content to drive up subscriber numbers outside of the U.S.

Disney has already moved to broaden its appeal by adding more adult-level content in global markets and, as of this month, also in the U.S., with its introduction of MA-TV-rated Marvel TV shows.

The company upped Disney+’s price by $1, to $7.99 last March, and Chapek has hinted that it might soon do so again. There is some speculation that a hike in the SVOD price might be paired with the introduction of a more affordable, ad-supported version.

Disney reported that the subscription-based video-on-demand (SVOD) service ended 2021 with 130 million global subscribers —up 37% for the year. But it missed its subscriber targets in the first and third calendar quarters, making up for those periods with better-than-expected gains in calendar Q2 (12.4 million) and Q4 (11.8 million).  

Disney attributed the slowing in part to the pandemic interfering with original content production.

Disney-controlled streamer Hulu already offers a reduced-price ad-supported tier (at $6.99 per month, versus $12.99 for the ad-free version) — as do most of Disney’s streaming competitors, including HBO Max, Peacock, Discovery+ and Paramount+.

At this point, Netflix and Apple TV+ are the only major services without an ad-supported option — and with Apple TV+’s no-ads service price at just $4.99 per month, there would seem to be little rationale for adding a cheaper option.

Netflix, which just raised its price from $14 to $15.50, has continued to insist it won’t offer an ad-supported version, and seems to be more focused on upping revenue and margins through the price hike, increasing retention levels and offerings like an online merchandise shop.