Rita Ferro, president of advertising sales at Disney, said the next tier of ad-supported Disney+ will have a less “robust” amount of ads than Hulu. This disparity, at least initially, will be mainly due to the fact that around 65% of viewing on the streaming service is for movies, which are not amenable to commercial interruption.
“Movies are the reason people come to the platform, and movies have a different ad load,” she explained. The family nature of Disney+ will also limit reach to “four quadrant” advertisers. Disney held its initial pitch to advertisers last night and, other than a brief quip from CEO Bob Chapek at the start, no details were offered on the advertising tier. Consumer pricing, timing and other details are yet to be determined.
Speaking alongside Disney Chief Financial Officer Christine McCarthy at a conference hosted by Wall Street research firm MoffettNathanson, Ferro said the plan was to “start slow” with spots 15 and 30 seconds before adding the full suite of advertising options on Disney+. Since announcing the ad-supported option earlier this year, she said, “I can’t even tell you what demand we’ve had for it. … The response has been extraordinary.
During the high-profile session, which drew notable comments about McCarthy’s theme parks and movie theaters, Ferro was asked by moderator Michael Nathanson about his reaction to new players coming to the AVOD game after starting as a pure subscription. HBO Max just showed off an ad-supported version last year, and Netflix said it will do the same (in a still-resonating industry shock) sometime next year.
Asked about the new crop, Ferro said, “I’m excited about every platform that wants to come into space, it’s not easy.”
Addressing the disparity in financial terms, Ferro said the number of ads, if it were to stay below Hulu’s level, would not be a limiting factor. “More demand drives up prices,” she said. Advertisers have complained in recent years when linear ratings have dropped by 25%, but the running ad rate has increased by 30%. “Supply and demand,” Ferro said.
Much of the conversation focused on the many steps it took for Disney to be able to fully attack the ad-supported streaming business. Was it easy? “Not easy,” Ferro replied. “We’ve been preparing for this moment for years.” A series of acquisitions and strategic moves – including purchases of most of 21st Century Fox and BamTech as well as investments in ad technology – have led to this point.
“I like our hand,” Ferro said. “We have 14 years of Hulu experience, decades of experience across the company. We have relationships in the marketplace…people trust us.
McCarthy was asked about expectations for how many subscribers will take Disney+ with ads, as opposed to the ad-free version. “It’ll likely be roughly the same percentage for Disney+ and Hulu, based on the experience curve we’ve seen.” Hulu has generally leaned towards the cheaper, ad-supported version, as is the case with Paramount+, Discovery+, and other dual-model options.
The Hulu experience is one of the main reasons Ferro and McCarthy feel optimistic about the influx of new revenue on Disney+. Since the company took full operational control of Hulu in 2019, its revenue has doubled, Ferro said. Programmatic ad revenue (an emerging form of ad selling in which ads are served through a computer-automated process) increased fivefold.
Nathanson asked McCarthy why Disney was moving towards general entertainment on Disney+, deviating from the initial laser focus on the five main pillars of Marvel, Pixar, star wars, National Geographic and Disney-branded programs. Nathanson and some other Wall Street analysts have expressed concern over the decision to place the company in a more complex spending environment. Looking for more general subscribers, he might decide to spend a lot on a less brand-dependent title without being able to rely on proven marketing and branding methods. In other words, it could be seen as an expensive roll of the dice compared to the launch strategy of relying on a list of successful brands.
“The one thing we hear from subscribers, especially the disinterested ones,” McCarthy said, is that “they’re looking for more general entertainment.”
Figuring out how to properly match content within the Disney ecosystem is an evolutionary process, especially given the inherent sensitivities of a platform with many kids streaming.
“I wouldn’t have my 8-year-old watch Dope or Pam and Tommysaid McCarthy, alluding to two edgy headlines from Hulu. But given that about half of Disney+ subscribers don’t have kids, she continued, “we see that as being additive, not that we want to be in a race that we can’t win. “
McCarthy also touched on theatrical cinema, which has been a source of great speculation given Disney’s success and control of half of the US box office. Even after a breakthrough with Dr Strange 2Chapek reported no change in the company’s case-by-case stance on evaluating release models.
“Not all films are created equal, audiences are not created equal,” she said. “These people who choose to go to the theater are going for a specific product. The films that have been most successful are action, superheroes and what I would call adventure.
For some movies, she said, “it’s great to use movie theaters” because moviegoers can “scream and scream and clap their hands.” At the same time, The Mandalorian proves that, in the opinion of the executive, “we can create franchises on Disney+”.
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