Disney+'s announcement that it will expand its base of streaming subscribers by adding an ad-supported option could hurt the company long term -- resulting in weakened consumer usage and possible subscriber defections to competitors, according to one analyst.

“Lowering price and jamming in ads does not feel like the answer to driving usage — if anything it feels like it will have the opposite effect,” says Richard Greenfield, partner/media and technology analyst at Lightshed Partners, in a recent note. “Disney needs to focus first and foremost on delivering more must-watch, buzzy content on Disney+.”

Adding more advertising inventory does make sense, he says, when boosting consolidated efforts with its sister streaming ad-supported Hulu option, he says.

Other analysts say an ad-supported Disney+ would help expand ad avails for needy TV advertisers looking for more reach to offset sinking ad-supported linear TV network viewership.

Consumers admittedly have moved more toward lower-priced advertising supported streaming options, he says. Citing data from Antenna, 59% of Hulu total subscribers are ad-supported, compared to 63% for Paramount+; 72% for Peacock; and 44% for Discovery+. Overall, the percentage of ad-supported streaming signups were 32% in 2021 -- up from 19% in 2020.

The downside is that ad-supported streaming tends to yield weaker everyday viewer usage.

“Inserting ads into streaming video content leads to lower consumption per user per day... SVOD services should want to capture as much time spent as possible,” he says. For example, there is very little binge-ing of ad-supported content versus content on subscription ad-free services.

Netflix has done well in building daily usage and business overall -- without ad-supported revenues -- resulting in nearly 70 million U.S. subscribers. “Netflix has proven that you do not need advertising to have a scaled U.S. subscription streaming service.”

For its part, Disney+ has also done remarkably well -- with 42.9 million U.S. subscribers -- considering it is only two-and-a-half years old.

Thinking longer-term, Greenfield says: “Existing assets like ESPN, ABC, Hulu and/or FX would obviously change the thought process around advertising on Disney+ and an integration with Hulu. Honestly, it just feels too early to be contemplating ads on Disney+.”

But more importantly -- in the near term -- all this could have a reverse effort, benefiting competitors.

“The end result will be making the tech platforms -- that do not feel the pressure to offer an ad-based tier -- that much more compelling, driving greater consumer enthusiasm for ad-free services including Netflix, Amazon Prime Video and Apple TV+.”