The Mouse House is no longer shedding streaming subscribers.
Disney+ added nearly 7 million subscribers last quarter, and, of those, about 2 million new sign-ups were for the streamer’s year-old ad-supported tier.
Currently, Disney+ with ads has 5.2 million subscribers.
That number should keep rising – and quickly – because, according to the company, roughly 50% of new Disney+ subscribers are now choosing the ad tier when they sign up for an account (hence the quicker momentum last quarter compared with the rest of the year).
And that momentum contributed to Disney’s 4% YOY growth in streaming ad revenue last quarter, according to Kevin Lansberry, interim chief financial officer.
As a result, the average revenue per Disney+ user is $6.70, a 2% increase from the previous quarter.
“The building blocks are in place to achieve [streaming] profitability by Q4 of 2024,” said CEO Bob Iger.
All in on advertising
Streaming profitability hinges on advertising.
Ad spend still hasn’t fully recovered from the economic slump that stunted growth for media companies throughout the year. In the meantime, “we’ve now put tools onto Disney+ to make [it] an even more attractive platform for advertisers by providing better targeting,” Iger said.
This month, Disney made its first-party audience graph available for ad targeting on Disney+ and added its inventory to programmatic private marketplaces. (Until now, Disney+ ad buys could only happen directly or through programmatic guaranteed deals.)
Disney has been gradually upgrading Disney+ ad targeting throughout this year, including by adding geotargeting and age/gender demos over the summer. The idea is to make ad targeting on Disney+ as advanced as it is on Hulu, Iger said.
Back to bundles
And speaking of Hulu, it’s one of the building blocks necessary for Disney to create profit in its streaming biz, Iger said. Last week, Disney confirmed that it expects to pay at least $8.6 billion for Comcast’s one-third share of Hulu.
Which also means Disney is on track to roll out an app in the spring that combines Disney+ and Hulu content, Iger said. In the meantime, the company will launch a beta version of the new app for Disney bundle subscribers in December.
According to Iger, consolidating Disney+ and Hulu into a single app should result in increased engagement (defined by time spent on the app), lower subscriber churn and, of course, more ad revenue when advertisers can buy inventory for both services in the same place.
A more efficient ad-buying process is why media companies are revisiting the traditional TV bundling model. Iger acknowledged Disney’s recent resolution of its carriage dispute with Charter Spectrum in the fall – Disney agreed to add its streaming inventory to Spectrum’s most popular cable package – as “a great deal for us that reflects our strategic priority: streaming.”
Adding streaming to pay TV bundles will distribute Disney+ to new viewers who haven’t cut the cord, which should increase both subscriber numbers and ad revenue for Disney.
Eager for ESPN
Another core piece of Disney’s streaming ad revenue puzzle is ESPN.
Iger confirmed Disney’s plans to launch ESPN+ as a standalone streaming app, but didn’t share additional details on timing. When it does happen, though, ESPN will still remain part of Disney bundles on pay TV.
“The continued strength of ESPN [against] the backdrop of notable declines in the linear industry demonstrates the value of sports and the power of the ESPN brand,” Iger said. For reference, a recent SEC filing says ESPN generated more than $16 billion in revenue for Disney during its 2022 fiscal year.
Plus, Iger said, a balanced streaming portfolio that includes both AVOD and live sports is the formula for securing “stability in ad sales despite broader [economic] challenges in the media industry.”
