Disney is “in good shape” in terms of being able to launch an advertising-supported version of Disney Plus this year, CEO Bob Chapek said.
Speaking on Disney’s earnings call Wednesday, Chapek noted that Disney has already been selling ads on its Hulu and ESPN Plus streaming services.
“The combination of our ESPN Plus streaming tech stack and our experience in Hulu ... prepare us to already bring this tier into operation,” he said. “So there’s nothing that we need to go acquire or frankly even in any significant way, develop anything new. And that's due to the ongoing investments in technology that we've made over time to increasingly automate much of this process. We've been looking forward to this for a while. This is something that's well-greased if you will. And our teams are hard at work at making that become a reality.”
That’s a big contrast to Netflix, which announced earlier this year it was looking to add a lower-priced, ad-supported version of its product. This week Netflix reportedly told staffers that it hoped to get the ad-supported version up and running before the end of the year.
But having eschewed ads throughout its existence, it’s unclear where Netflix would get the ad sales and operating capabilities.
With the upfront advertising market about to start, Chapek said Disney is getting a very positive reaction from ad clients.
“They have been asking for this for years,” Chapek said of ad availabilities on Disney Plus. “We also expect Hulu, which has been very strong for us, at the same time to be a key contributor of our performance at the upfronts this year.”
He noted that advertisers are looking for multiple platforms in order to reach more consumers. “As a company we’re going to provide that, given our portfolio, with streaming and our linear networks," he said. "So I think we’re creating more avenues both for consumer choice and for comprehensive advertising solutions.”
Sports are also in high demand going into the upfront, Chapek noted.
Disney CFO Christine McCarthy said that Disney had not yet announced the price point for the ad-supported service.
“We will continue to evaluate what makes sense for the service in terms of pricing. And, I will say that, you can look to our experience with Hulu and their ad-supported tier. We believe that this will contribute to ARPU and we look at it, as certainly, something additive, that will work towards achieving our long-term profitability goals.”
Chapek also said Disney was close to being ready to create a fully a la carte steaming version of ESPN.
“We’re very conscious of our ability to go more aggressively into the DTC area of ESPN,” he said.
But he noted that the company has some hesitancy because of the cash linear networks generate. Disney has been using cash from linear to pay down debt and invest in streaming.
“What we're doing is sort of putting one foot on the dock, if you will, and one foot on the boat right now. But we know at some point when it's going to be good for our shareholders, we'll be able to fully go into an ESPN DTC offering,” Chapek said.
“We fully believe that there is a business model there for us that's going to enable us to regain growth on ESPN Plus in a full DTC expression. But, at that point, obviously, that will have ramifications on immediate cash flow that we give from our legacy, linear networks,” he said.
“I would emphasize that we're only going to do it if it's accretive to our shareholder value,” Chapek added. “When it comes time to actually pull the trigger I can tell you that it will be the ultimate fan offering that will appeal to superfans that really love sports. And I think there's nobody but ESPN that frankly could actually pull that off." ■
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Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.