When the company introduces its advertising-supported service, it will keep its kids programming and new movies free.
People who asked not to be identified because the company is still working out the details said that the company told partners it wouldn't run ads during original kids programs. Some studios that have licensed the rights to children's programs won't allow the company to run commercials. The company decided that original movies should be ad-free at first, which should allay the concerns of top filmmakers.
Details and strategies for the advertising-supported service are still being finalized. The ad tier is expected to be introduced next year. The company said that it is in the early stages of figuring out the advertising business.
The new tier is part of a plan to make the service more appealing to cost-conscious consumers. In the first six months of the year, the company lost subscribers and needs to start adding them again in order to reverse the decline in its stock price. More than 220 million people pay for the service, and hundreds of millions more use it because they are relatives or friends of a subscriber.
According to analysts, the company could make $3 billion to $4 billion a year in ad sales. It will be one of the largest players in online video advertising.
Although it can insert commercials into programs it owns, it doesn't have the right to do so for its entire catalog because it licenses thousands of titles from outside studios. The rights to offer programs in an ad supported environment are not included in many of the deals. People with knowledge of the negotiations said that the company would pay between 10% and 15% of the current value of the deals to get the rights.
Some of the partners won't allow ads during certain programs. The company won't offer every show from its current service on the ad version.
Disney+ is an ad-supported version of its flagship service. Disney-owned Hulu has a version with commercials.
Most streaming services show more ads online than on TV. They want to charge more than the industry standard. Kids programming is more important to Disney than anything else.
Advertising in children's programming is a challenge. They had to pay $170 million for violating the privacy of children. There will be no commercials in the news service and at some point in the future there will be ads.
There is a challenge in movies. Movie theaters don't run ads before new movies, but they do during them.
According to industry experts, there's still a lot of money to be made without ads. The company has a large pool of potential viewers and is known for having high-quality programs, such as 'Bridgerton' and 'Squid Game'. There are no ads during any of the shows that were originally released without commercials. Some of its original series have previously appeared without ad breaks.
The technology and sales will be handled by Microsoft. The ads-sales operation will likely be built by the company if it grows into a large business. The company is looking to hire an executive and a salesperson.
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