Disney+ will generate $1.8 billion in U.S. ad revenue by 2025 from its forthcoming ad-supported streaming tier, with Netflix coming in at $1.2 billion, Wall Street analyst Michael Nathanson estimates in a new report.
While Disney will pile up more cash, Netflix’s bottom line will benefit more from the influx of ads given the impact of Disney’s theme parks and linear networks on its balance sheet, Nathanson concluded in his report, which is titled “Mad Men to the Rescue.” On the global front, Netflix has more potential in the long run, Nathanson believes, though his report is confined to the U.S. as a starting point.
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One main takeaway for Nathanson is that ad revenue should not be seen as a panacea. “While we are excited by the opportunity that advertising creates at these two streaming giants, the devil will be in the details of how each company prices these new offerings and how much of the available content impressions will be available and suitable for advertising,” he wrote. Given the many variables and contractual issues to be worked out, he noted, “very little is known about the pricing and available commercial impressions of these new ad tiers.”
Nathanson anticipates that most of the advertising on both companies’ platforms will come from “non-sports and news linear cable and broadcast network dollars.”
Describing the report as “preliminary analysis,” Nathanson did not adjust his price target or ratings for Netflix and Disney stock as part of the new assessment, maintaining a “neutral” on both.
Disney announced its plan to introduce ads to Disney+ on March 4. Netflix followed the next month, but in a less formal fashion, with Co-CEO Reed Hastings mentioning it almost offhandedly during the company’s quarterly earnings interview. Their decision adds to the number of ad-supported players in the crowded streaming sector, with NBCUniversal’s Peacock, HBO Max and Paramount+ among the new outlets with a blend of subscriptions and advertising. Hulu began as a free, ad-supported outlet before adding subscription plans much later. Prime Video is largely ad-free but is showing ads on live sports including its upcoming slate of NFL games. Apple TV+ remains ad-free.
One practical advantage Disney has, according to Nathanson, is the ability to bundle Disney+ with its other streaming and linear outlets. With Hulu’s ad revenue growth on a steep upward trajectory, the company can also leverage technology and experience from the Hulu operation and look to replicate it with Disney+. (Even Hastings opted to give Hulu a rare shout-out as one of the reasons why Netflix decided to make the pivot it had long resisted making.)
Nathanson says Hulu is still the leader of the streaming advertising pack, on a pace to collect $2.7 billion in 2022. By 2025, the analyst is calling for Hulu to reach $4.1 billion in the U.S., followed by Peacock at $2 billion.
Netflix’s main advantage entering the fray will be the volume of viewing time it commands – about half of all domestic streaming, according to recent Nielsen numbers.
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