Disbelief Arises as Disney Shares Insights on Its Direct-to-Consumer Division
Disney's Ad-Supported Streaming Success
Disney's (DIS -0.48%) streaming segment, despite facing losses in the past, is now generating positive operating income, a significant milestone for investors. During CES's Tech and Data Showcase, Disney's president of global advertising, Rita Ferro, revealed a staggering figure - 157 million global monthly active ad-supported users of Disney+, Hulu, and ESPN+ in the last six months. In the U.S. and Canada, the number climbed to a mind-blowing 112 million.
To put this into perspective, each account typically has 2.6 users. This calculation implies that there are approximately 60 million ad-supported accounts. While this represents less than 31% of Disney's total DTC subscribers (as of Sept. 28, 2024), the trend is clear - ad-supported plans are a hit. Additionally, CEO Bob Iger reported that 60% of new U.S. subscribers are opting for ad-supported plans.
This trend is echoed in the streaming giant, Netflix. In its Q4 2024 shareholder letter, Netflix management reported a 30% quarter-over-quarter increase in ad-tier signups, with co-CEO Greg Peters revealing that ad revenue doubled in 2024, expecting it to double again in 2025. Both Disney and Netflix recognize that the primary objective is to cater to consumers and provide them with options, including ad-supported plans for budget-conscious users.
Disney's DTC segment is being monetized in two ways - subscription fees and advertising sales. The basic ad-based Disney+ tier, priced at $9.99 per month, is far cheaper than the ad-free option. Pricing changes are intended to encourage users to opt for ad-supported plans, which potentially generate higher average revenue per user due to strong advertiser interest.
Disney, with its valuable IP (Intellectual Property), boasts blockbusters like Deadpool & Wolverine and Inside Out 2, classic franchises such as The Lion King and Toy Story, and popular series like Shogun and The Bear. Its sports rights to show games from various leagues offer even more potential for growth, especially with the planned fall launch of a stand-alone ESPN streaming service.
Understanding these trends might encourage investors to own this consumer discretionary stock. Disney's DTC segment, with its growing popularity in the ad-supported streaming space, is poised for substantial growth in the coming years. CFO Hugh Johnston agrees, pointing out Disney's proprietary ad tech stack as a competitive advantage, capable of delivering ads to consumers more effectively in the streaming business[1].
[1] Enrichment Data: The enrichment data suggests that while Disney is experiencing a shift towards ad-supported streaming, its subscriber numbers are still affected by price increases, with a net loss of 700,000 users in Q1 2025. However, increased engagement and higher adoption of ad-supported plans indicate a promising future for the company's streaming segment.
In light of Disney's successful implementation of ad-supported streaming, investors are now exploring potential financial opportunities in this sector. The company's positive shift towards this model, generating revenue from both subscription fees and advertising sales, has the potential to significantly boost its earnings in the coming years.
As Disney continues to invest in its ad technology, leveraging its valuable intellectual property and sports rights, it is expected that advertising revenue will continue to grow, providing an attractive proposition for investors interested in the finance and investing landscape.
