Disney+ is gearing up to launch a new streaming tier with ads on Thursday and, according to new data analysis form Kantar, could expect one in four of its loyal base to trade down to the AVOD plan.
Disney+ with ads costs $7.99 per month and tomorrow’s launch comes about a month after SVOD giant Netflix debuted its own ad-supported tier.
According to Kantar, in the third quarter Disney+ saw around 6% of users churn, an improvement from the 9% that left the service in Q2 and lower than the 9% industry churn across streaming services in the period.
In estimating how many Disney+ subscribers will drop down to the paid AVOD tier, Kantar pointed to the proportion who traded down for ad-supported options on other services in Q3. Looking at the rest of the ecosystem among platforms with both SVOD and AVOD or FAST offerings (such as HBO Max SVOD subs who downgraded to HBO Max with ads), of those that didn’t churn off a service roughly a quarter (22.8%) dropped down to an ad-supported tier.
Also potentially contributing to Disney+ users opting for the cheapest plan with ads (with the ad-supported launch the price of ad-free Disney+ increased to $10.99 per month), is that a greater proportion of new Disney+ subscribers are stacking the subscription on top of other services, increasing costs.
Kantar’s Q3 Entertainment on Demand report, which queried 11,453 US streaming customers, shows that Disney+ over-indexed in stacked users, with 47% of its new users adding the service to their existing subscriptions (as opposed to replacing another service, returning to subscriptions after lapsing or being completely new to subscription streaming).
Overall Disney+ accounted for 6% of new streaming subscribers in Q3 – only behind Amazon Prime Video, which captured a 14% share. And among viewers that streamed AVOD along with other platforms, Kantar found Disney+ nabbed an 8% share of total viewing time in Q3, which was behind leaders Netflix, Amazon Prime and Hulu.
As for what’s attracting users to Disney+, content and brand affinity helped drive Q3 signups for the service, with 38% of respondents saying they subscribed because of specific content and about a quarter citing value for the money (25%) or "I love this brand" (24%). The top three factors were followed by the amount of original content (19%), ease of use (18%) and quality of shows (18%). Another 17% cited the amount of children’s content available as driving their subscription.
Still, according to Kantar, ease of search, interface and value for money have become key pain points for Disney+ subscribers. And not everyone will be eager for ads, as 10% of new subscribers in Q3 said an ad-free experience drove signups for Disney+.
That said, adoption of streaming services with ads is expected to grow over the next several years with Parks Associates projecting that the number of households using ad-supported streaming services will reach 52 million in 2027, growing at an annual compound growth rate (CAGR) of 6.7%.
The arrival of Disney’s ad-supported plan comes as the company is undergoing its own shakeup and has put streaming profitability at the forefront over simply growing subscribers, with former long-time CEO Bob Iger recently making a surprise return to helm the media company once again, replacing Bob Chapek as chief executive.
Commenting on the launch of Disney+ with ads, Kevin Krim, president and CEO of data, measurement and analytics company EDO, pointed to the Disney's larger cross-platform business as an advantage.
“Disney’s cross-platform empire blurs the lines between streaming and linear, giving them a lot of ways to take advantage of a D+ hit like Andor, which aired two full episodes across Disney-owned ABC, Freeform, FX, and Hulu recently,” Krim said in emailed comments. “As the platform diversifies with popular franchises such as Star Wars, Marvel, Pixar and Dancing with the Stars, it will continue attracting an even broader audience.
However, in introducing ads the experience needs to be seamless, he noted.
“To get those subscribers to stick around, though, Disney’s ad experience has to be seamless for both consumers and advertisers,” Krim continued. “Most TV viewers are actually OK being served ads in exchange for lower subscription costs, but they still demand entertaining, engaging premium content and quality ads delivered with great technology.”