Disney Plus With Ads Is Not a ‘Hail Mary’ Strategy, CFO Says

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Disney CFO Christine McCarthy insisted that media giant’s move to introduce a cheaper, ad-supported version of Disney Plus later this year is not a “hail Mary” to try to hit aggressive streaming-acquisition goals with a lower entry price.

The goal of Disney Plus with ads is to provide consumers an additional choice for how they want to subscribe to the service, according to McCarthy, speaking Monday at Morgan Stanley’s 2022 Technology, Media & Telecom Conference.

“We had some preconceived notions of what consumers wanted” before the company launched Disney Plus, she said — in other words, the assumption was that people generally wanted zero advertising. McCarthy said Disney did some additional research and found that some consumers viewed ad-supported streaming services more favorably than ad-free services. “We also had an incredible amount of advertiser demand,” she added.

The company last week announced plans to launch an ad-supported subscription plan for Disney Plus, to launch first in the U.S. in late 2022. It hasn’t revealed the cost of Disney Plus with ads, only that it will be less than the regular no-ads version, which in the U.S. costs $7.99 per month.

“We welcome it if [the AVOD tier] brings in more subscribers and increases [average revenue per subscriber] but it’s really about consumer choice,” McCarthy said.

In announcing the ad-supported version of Disney Plus last week, the company called it a “building block” in the company’s aims of reaching 230 million-260 million Disney Plus subscribers worldwide by the end of its 2024 fiscal year. At the end of 2021, Disney Plus had 129.8 million paying customers worldwide, gaining 11.8 million for the quarter ended Jan. 1, 2022.

McCarthy said Disney’s senior execs “feel good” about being able to hit the subscriber target. “We as a management team like having [subscriber and profitability] targets out there and public,” McCarthy said. “We either make it or don’t make it.”

Disney will be “very careful” about the ads it runs on the Disney Plus AVOD tier, and will be compliant with privacy regulations in the U.S. and internationally, McCarthy said. She also said the ad-supported Disney Plus will have a comparatively light ad load.

The timing of the Disney Plus with ads announcement was to set the stage for deal discussions during the 2022 television upfronts in May, McCarthy said. “The advertising community was extremely pleased with this announcement,” she said.

Disney Plus, launched in November 2019, is still “a toddler,” McCarthy said. We couldn’t be happier about the amount of data we’ve been able to get – before we were always going through intermediaries.

McCarthy also touched on Disney’s decision, along with other Hollywood studios, to suspend theatrical release of movies in Russia because of the country’s war on Ukraine.

“It’s a very unfortunate situation,” she said. According to McCarthy, Disney’s business has very limited exposure to theatrical distribution in Russia and Ukraine: She said that accounts for only 2% of its operating income for the two countries.

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