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Rita Ferro, Disney’s president of ad sales, said the upcoming ad-supported tier of Disney+ will have a less “robust” count of ads compared to Hulu. This discrepancy, at least initially, will be mainly due to the fact that around 65% of subscribers use the streaming service for films that do not lend themselves to commercial breaks.
“Movies are why people come to the platform, and movies have a different ad load,” she explained. The family-friendly nature of Disney+ will also limit coverage to “four-quadrant” advertisers. Disney held its upfronts pitch for advertisers last night, and apart from a brief tease from CEO Bob Chapek at the start, no details on the ad tier were offered. Consumer prices, timing and other details are still TBD.
Speaking to Disney CFO Christine McCarthy at a conference hosted by Wall Street research firm MoffettNathanson, Ferro said the plan is to “start slowly” with 15- and 30-second spots before the full suite added by advertising options on Disney+. Since announcing earlier this year about the ad-supported option, she said: “I can’t even tell you what the demand was for it. … The response was exceptional.”
In the wide-ranging session, which produced some notable commentary on McCarthy’s theme parks and cinemas, Ferro was asked by moderator Michael Nathanson about her reaction to new players coming to the AVOD game after its subscription-only launch. HBO Max launched an ad-supported version just last year, and Netflix has announced that will be in the next year or so (in an industry shocker that’s still resonating).
When asked about the new crop, Ferro said, “I’m happy for any platform that wants to come into space, it’s not easy.”
Regarding the financial differences, Ferro said that should the number of ads remain below Hulu’s levels, it won’t be a limiting factor. “More demand increases the price,” she said. Advertisers have complained over the last few years that linear ratings are down 25%, but the common rate for ads is up 30%. “Supply and demand,” Ferro said.
Much of the conversation revolved around the many steps it took Disney to be able to fully attack the ad-supported streaming business. How easy was it? “Not easy,” Ferro replied. “We’ve been preparing for this moment for years.” A series of acquisitions and strategic moves — most notably the purchase of most of 21st Century Fox and BamTech, as well as investments in advertising technology — led to this point.
“I love our hand,” Ferro said. “We have 14 years of Hulu experience, decades of experience across the company. We have relationships in the market… people trust us.”
McCarthy was asked about expectations for how many subscribers will use Disney+ with ads versus the ad-free version. “That’s probably going to be about the same percentage for Disney+ and Hulu based on the experience curve we’ve seen.” Hulu is generally leaning toward the cheaper, ad-supported version, as is the case with Paramount+, Discovery+, and other dual-model options is.
The Hulu experience is a key reason Ferro and McCarthy are optimistic about the influx of new revenue to Disney+. Since the company took full operational control of Hulu in 2019, its revenue has doubled, Ferro said. Revenue from programmatic advertising (an emerging form of ad sales that uses a computer-automated process to serve ads) has increased five-fold.
Nathanson asked McCarthy why Disney is transitioning to general entertainment on Disney+ and moving away from its initial focus on Marvel’s five main pillars, Pixar, war of stars, National Geographic and Disney programs. Nathanson and several other Wall Street analysts have expressed concern about the decision, which places the company in a more complex cost environment. When looking for more general subscribers, it might decide to splurge on a less branded title without relying on proven marketing and branding methods. In other words, leaning on a list of blockbuster brands could be seen as an expensive roll of the dice compared to the launch strategy.
“The only thing we’re hearing from subscribers, particularly those who are churning out,” McCarthy said, is that “they’re looking for more general entertainment.”
Figuring out how to find the right match for content within the Disney ecosystem is an evolving process, especially given the inherent sensitivities on a platform with lots of streaming kids.
“I wouldn’t have my 8 year old watch Intoxicated or Pam & Tommy‘ McCarthy said in a nod to two edgy Hulu titles. But given that about half of Disney+ subscribers don’t have children, she continued, “We look at that as additive, not that we want to be in a race that we can’t win.”
McCarthy also addressed box office admissions, which has been a source of much speculation given Disney’s success and control of half the US box office. Even a breakthrough with dr strange 2Chapek signaled no change in the company’s case-by-case stance on evaluating release patterns.
“All films are not created equal, audiences are not created equal,” she said. “Those who choose to go to the cinema are choosing a particular product. Movies that have done the best are action, superheroes and what I would call adventure.”
For certain films, she said, “it’s great to use theaters” because moviegoers can “scream and howl and give each other high-fives.” At the same time, The Mandalorian proves that, according to the manager, “we can create franchises on Disney+”.
