Disney (DIS) to Launch Ad-Supported Video on Demand

Aims to reach more than 230 million subscribers by the end of 2024

By
Vidya Ramakrishnan
Picture of Vidya Ramakrisnan.
Full Bio
Vidya is a seasoned financial expert with a strong understanding of fundamental and technical analysis. She is an experienced financial writer and editor and has worked at several equity research firms and investment banks. Vidya started her career at Merrill Lynch in private client services and has completed the Series 7 and 66 FINRA exams. Vidya holds a doctorate in English from Columbia University.
Learn about our editorial policies
Published March 07, 2022

After a stellar quarter that ended on Jan. 1, 2022, The Walt Disney Company (DIS) announced that it would launch ad-supported video on demand (AVOD) to reach its target of more than 230 million subscribers by the end of fiscal 2024. As of Dec. 31, 2021, the service had 130 million subscribers.

The new AVOD service is set to go live at the end of 2022 and is expected to carry a cheaper price tag than the current version. The move will benefit subscribers, who will pay less; content providers, which will improve their reach; and companies, which can build their brand among AVOD subscribers.

Key Takeaways

  • Disney plans to launch ad-supported video on demand (AVOD) in its direct-to-consumer segment.
  • The launch is expected to help the company reach its target subscription base of more than 230 million by 2024.
  • The trend toward AVOD adoption indicates a market where price wars are becoming fiercer, even as companies try to expand their reach through ad-supported free viewing.
  • AVOD moves away from linear TV and subscription video on demand (SVOD) by increasing access to content while monetizing it without a high cost to the subscriber.

The AVOD Market

In June 2021, Warner Brothers launched an ad-supported streaming service with the cheaper HBO Max. With a discount of 33%, the new HBO Max was priced at $9.99 for a monthly subscription and featured four minutes of ads per hour. The company expects its AVOD service to generate the same margins as a $15-per-month package with no ads.

Other AVOD services include Hulu with ads, ViacomCBS's Paramount Plus with ads, DiscoveryPlus with ads, and NBCUniversal's Peacock Premium with ads. All four services are cheaper than their ad-free video on demand (VOD) versions.

Fight for Subscribers and Price Wars

As streaming services struggle to reduce churn among their subscribers, all providers seek to lower the price while upping the content. Disney's direct-to-consumer services Disney+, ESPN+, and Hulu have been caught in this fray.

AVOD is expected to grow in demand, with AVOD ad inventory at Disney+, as well as Hulu, Netflix, Inc. (NFLX), and Amazon.com, Inc.'s (AMZN) Prime Video reaching $300 million every month in 2021. AVOD expenditure is expected to reach triple-digit growth over the next five years to $66 billion.

Trend Toward Free Viewing

AVOD offers subscribers access to free and unlimited viewing that is supported by customized ads. While this reduces or eliminates one revenue stream (subscription fees), it opens up another (ad revenues) while potentially expanding the user base. AVOD may also reduce subscriber churn as streaming services focus on content rather than on price. According to Parks Associates, the average churn rate in U.S. households is 44%, and the most common reason for the churn is the lack of new content.

As over-the-top (OTT) streaming over the internet directly to customers matures, the trend seems to be toward AVOD adoption. According to TVision, the time spent on AVOD streamed content increased from 9% in the first quarter of 2021 to 38% in the third quarter of 2021. Subscription video on demand (SVOD) decreased by 8.6% to 32% during the same period.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. Yahoo Finance. "Disney Plus to Intro Cheaper, Ad-Supported Plan Later This Year. "

  2. Variety. "HBO Max with Ads Launches."

  3. Adage. "How Ad-Supported Video on Demand is Disrupting Streaming."

  4. National Interest. "Streaming Services Battle to Keep Subscribers Over Competition."

  5. NextTV. "Viewers Are Spending More Time With AVOD than SVOD."

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description