Ads or no ads? The choice Netflix and Disney Plus subscribers will soon face

Streaming giants Netflix and Disney Plus are set to plunge into advertising. Subscribers keen to avoid ads on their services will be asked to pay more each month than subscribers who either can’t afford to do the same or who decide ads are worth enduring to keep their entertainment costs down.

Disney chief executive Bob Chapek is promising “a thoughtful approach” to the volume and frequency of ads on Disney Plus, while Netflix co-chief executive Reed Hastings is framing the once-dismissed idea of a cheaper, ad-supported version of Netflix as “consumer choice”.

This sounds benign — on paper. But as the subscription video-on-demand market reaches maturity, both bids to keep raking in revenues will require careful handling at what is a sensitive time for disposable incomes.

Get it wrong and paying customers could be infuriated to the point of cancelling, advertising clients will be dissatisfied and/or the streamers could simply wind up cannibalising their existing business.

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Get it right and a potential bonanza awaits — which would be bad news for those broadcasters, including RTÉ and Virgin Media Television, that had been hoping the likes of Netflix would stay away from advertising for longer.

So how will they go about it, and when? In the US Disney Plus with advertising will be available from December 8th but in Europe it will likely be 2023 before this tier is rolled out, with the company yet to confirm its non-US plans. Netflix, meanwhile, is targeting a launch “around the early part of 2023″ and, though it is feasible that dates will vary by market, it has so far made no distinction between its US and worldwide timing.

Netflix will maintain the price of its ad-free packages but offer a “cheaper” price point for the new ad-supported one — a move that could appeal in a recession

The media agencies that plan and buy advertising on behalf of clients in the Irish market do not expect to be waiting long. This is because, after shopping around for a partner, Netflix has appointed Microsoft to handle its ad sales and technology, while Disney — who are not newbies to advertising in the same way as Netflix — has struck an agreement with a large adtech company called The Trade Desk.

Irish media agencies are already familiar with the platforms used by both Microsoft and The Trade Desk, meaning they will be “able to plug into them straight away”, says to Colm Sherwin, chief digital and investment officer for marketing group Core.

Netflix, Sherwin says, “is under phenomenal pressure” to stop a narrative of stalled growth that has arisen this year. Once the initial testing phase is complete, it is not in its interest to delay.

Ed Ling, chief growth and operations officer at GroupM’s MediaCom, describes Netflix’s choice of Microsoft as partner as “smart”, but notes there is some uncertainty around what it will offer. “We’re keen to understand the model, what effectiveness it will have and what opportunities exist,” he says of both streamers.

How they deal with the shift will be critical. Disney has revealed that in the US the price of Disney Plus with ads will be $7.99 a month. This is the current price of Disney Plus without ads, which is set to rise $3 a month to $10.99. (In Ireland the price is €8.99 a month or €89.99 a year.)

If Disney simply places all existing US subscribers on the ad-supported service by default, it will give them “immediate scale”, GroupM says. Disney Plus “could end up being the largest ad-supported streaming service”, it predicts, and would likely remain so.

Disney is expected to show far less advertising per hour than most linear channels — just four minutes has been mentioned. It is thought viewers will be shown the same ad just once within an hour

Netflix has indicated a different approach. It will maintain the price of its ad-free packages but offer a “cheaper” price point for the new ad-supported one — a move that could appeal in a recession.

It may also tie in the launch of the cheaper ad plans with a crackdown on password sharing as a means of encouraging non-paying households to pay up — a move somewhat less well-timed for a recession, but much-flagged.

Other detail is limited. Netflix has declared it will be “a premium, better-than-linear TV brand experience for advertisers”, which perhaps hints at what level of pricing it intends to charge advertisers. As GroupM points out, Netflix doesn’t have existing rights to sell ads on all of its third-party content, so would either need to negotiate for them or concentrate more on showing ads on its menu screen.

Disney is expected to show far less advertising per hour than most linear channels — just four minutes has been mentioned. It is thought viewers will be shown the same ad just once within an hour and twice per day, with the ads appearing both pre-roll and mid-roll (that’s before and during a programme in non-jargon). And in a blow to subscriber patience but a boost for advertisers who actually want their ads to be seen, it is anticipated that Disney Plus’s ads will be non-skippable.

In the US several streamers already offer a choice between ads and no ads, with Comcast’s Peacock free to viewers who accept ads, as they mostly do. But Irish media consumers will most typically have encountered this explicit ads-or-no-ads choice in the case of audio streamer Spotify.

As with Peacock, Spotify’s ad-supported version is free. It offers these listeners the same music and podcasts as it does to paying ones, focusing instead on functionality restrictions as well as advertising interruptions to annoy non-subscribers into upgrading.

Netflix with ads might not permit downloads, Bloomberg has reported. At Core, Sherwin would not be surprised if Netflix also opted to hold back some of its most “premium” content from the ad-supported tier, reserving its best original titles for the more expensive ad-free plans. This, he says, would prevent a straight-up cannibalisation of its revenues.

Other streamers are available. Indeed, many others. But with Netflix sitting on 220.7 million subscribers and Disney Plus fast catching up with 152.1 million (with Disney also boasting a further 46.2 million Hulu subscribers and 22.8 million ESPN Plus ones), what these two big-spending Californian companies do next has obvious power to redraw the global television advertising market.

Side-note: expect a knock-on effect on how their shows are written too. Streamers’ scripted originals have eschewed the regular dramatic peaks of US broadcast television to date, but this might be the time for mini-cliffhangers to make their comeback — anything to stop us treating an ad break as the natural point to exit the app and choose daylight, sleep or the BBC instead.