- Expect to pay more for your favorite streaming services if you don't want ads.
- Bob Iger said Disney+ can make more money from ad-supported subscribers and wants to raise ad-free prices.
If you hate watching ads, expect to start paying more and more for your favorite streaming services.
Now that Netflix has shed its aversion to ads, all the top streamers are pursuing essentially the same strategy when it comes to their offerings: they have a low-priced tier with ads, a higher one that's ad free, and sometimes an even higher one that gets you more bells and whistles like ultra-HD video and high-quality sound.
You might think that these streamers make about the same amount of money per customer from their ad-supported and ad-free tiers. Take Disney+: It charges $7.99 for the ad-supported tier and $10.99 for the ad-free one. You'd be forgiven for thinking that Disney makes $3 from ads and that accounts for the price difference. It would make basic economic sense.
But in the current marketplace, that's often not true, and it's the reason you're likely going to have to pay more in the future to keep Disney+ and other streaming services ad free.
As Disney CEO Bob Iger explained on the company's earnings call earlier this month, he can make more money if you watch ads.
"Digital advertising is so attractive to advertisers that there's an opportunity for us to really lean into ad-supported and again raising our prices on the ad-free, keeping the prices on the ad-supported relatively modest to maybe perhaps no increases, increasing the delta, driving more subs in a higher [average revenue per user] direction," Iger said.
In plain English: Iger wants to raise prices on the ad-free version of Disney+ because the company can make more average revenue per user (ARPU) from the ad tier. This has generally been the case in the streaming industry and it's one of the major reasons Hulu, the early mover in ad-supported streaming, has historically had the highest ARPU among its peers. Even Netflix, the pioneer of ad-free streaming, has said it makes more per user from its ad-supported plan than its standard ad-free plan.
We have exited the land-grab phase of the streaming wars when it was all about achieving scale and growing total subscriber numbers. That focus on subscriber growth had kept the prices of ad-free streaming artificially low. These companies are now focused on revenue and profit. Advertising was great for that in the last major era of TV, that of cable. It should be no surprise that it's returning in full force: Disney+, Hulu, Netflix, Max (HBO Max), Paramount+, and Peacock all now have ad-supported tiers.
That's good news for anyone who can tolerate watching some ads, which is a pretty high percentage of Americans. The fact that Iger and other CEOs can make extra money from you will help keep the price of your subscriptions low.
But if you really want to keep your viewing ad free, it means you'll likely have to pay up.