Decision to Launch Ad-Backed Disney+ Was No ‘Hail Mary,’ Says CFO
Disney research found many consumers “are actually more favorably disposed to services with ads than without ads,” Chief Financial Officer Christine McCarthy told a Morgan Stanley investment conference Monday on the rationale for adding an ad-supported Disney+ tier later this year in the U.S. (see 2203040042). “We have also had an incredible amount of advertiser demand ever since the launch of Disney+,” she said.
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CEO Bob Chapek “has been really consistent” in talking about “choice and control for the consumer,” said McCarthy. “Let the consumer decide how they want to consume content, how they want to experience things, and this goes right down the alley of having an ad-supported tier.”
That the ad-supported Disney+ offering will be the lowest-cost tier is “a benefit to some” but not all consumers, said McCarthy. She cited the example of a Disney colleague who, given the choice between an ad-supported and ad-free services, “always opts for the ad-supported, not for cost, but he just likes having breaks,” she said. It's also going to be “great for the advertisers because we have a very unique audience here,” she said. “It is a family audience. We will be very careful about the ads we take, how we put them into our content.”
Disney has learned a lot over the past few years “about what kind of content lends itself to natural breaks,” said McCarthy. Though movies are commonplace on ad-supported tiers, it’s the “linear content” that’s “really almost written” to have “natural breaks for ad insertions,” she said. Disney would “certainly welcome it if it draws in more consumers,” and raises average revenue per user, she said. “But we're really doing it to address consumer choice.”
Any advertising accepted on Disney+ will need to be “consistent with the content,” said McCarthy. Accepted ads also will be “very, very mindful” of and compliant with children’s privacy laws, she said.
The timing of last Friday’s announcement “was to sell into the upcoming upfront in May,” said McCarthy. Many of those discussions have already started, “so the timing works,” she said. “Suffice it to say, the advertising community was extremely pleased with this announcement.”
Despite investors’ skepticism about the ability of Disney+ to reach its targets of breaking even with 230 million to 260 million subscribers by the October 2024 end of the fiscal year, “we believe we are well-suited to achieve the subscriber guidance as well as the profitability guidance,” said McCarthy. She denied media reports that launching the ad-supported Disney+ tier was “like a Hail Mary” aimed at bettering the chances of reaching the fiscal 2024 targets.