Ad-supported Disney+ will lean on company's success with Hulu

An upcoming version of Disney+ that will be subsidized through advertising will draw on the success of the company's other ad-supported service, Hulu, company executives said on Wednesday.

Speaking at the MoffettNathanson Media and Communications Summit, Rita Ferro, the company's president of advertising sales, said the integration of Hulu into the Disney portfolio of brands and services created an environment where executives at Disney learned just as much from their Hulu counterparts as the other way around.

"Hulu was the first AVOD [advertising video on-demand] platform, so they have 14 years of experience in this space," Ferro said, adding that the Hulu team brought "intel and learnings to our team [at Disney]."

That intel and experience has helped Disney set the foundation for its forthcoming ad-supported tier on Disney+. Which is good, Ferro said, because companies, marketers and ad buyers have shown interest in advertising against Disney+ since it launched nearly three years ago.

"I can't even tell you the demand we've had for this," Ferro said. "I remember the day Disney+ launched, I had four or five clients call me and say, when is the date?"

Since then, Disney has taken a methodical approach toward building out its ad-supported tier: Ferro said the company has been "preparing for this moment for years" and has taken a careful consideration to the type of content where advertisements will appear, how long each commercial spot will run and how often commercials will interrupt a movie or TV show.

To that end, Ferro said Disney intends to launch with 15-second and 30-second commercial spots, with no more than four minutes of interruptions per hour of content. Commercials will run against content viewed by children, Ferro said, but the service won't insert advertisements when pre-school aged users are watching and won't collect data on young viewers.

Christine McCarthy, Disney's Chief Financial Officer, said the company will lean heavily on the lessons learned at Hulu when it comes to Disney+'s advertisement strategy, though some adjustments will be made.

McCarthy said there would not be as many ad "pods," or commercial breaks, as there are on Hulu, where an hour-long show can have anywhere from 7 to 10 minutes of commercials (Hulu's ad pods are capped at 90 seconds each). For that reason, available commercial inventory on Disney+ will likely command a premium price.

"It's a different product and a different market," McCarthy said, referring to Disney+. "We do expect there to be a premium from [Disney+] advertising that we think will enhance the ARPU."

Disney has not released the price of the new ad-supported tier for Disney+, so it's unclear how much users will save by opting for content interrupted by commercials. But Disney says its streaming customers seem tolerant of advertising: Hulu, which charges $7 a month or $70 a year for its base, ad-supported plan, has more subscribers than an ultra-premium, but costlier, version of the service that eliminates commercials altogether.

"We actually have more AVOD than SVOD subscribers [at Hulu]," McCarthy said. "We think that will probably, we expect about the same percentage for Disney+ and Hulu just based on the experience curve that we've witnessed."