As more and more competitors enter the streaming market to compete with Netflix (NASDAQ: NFLX), many have adopted plans for a hybrid model of subscription revenue and advertising revenue. Disney's (NYSE: DIS) Hulu pioneered the model, and it actually generates more revenue per ad-supported user than ad-free user. Disney is following the same model with ESPN+, which cost $5 per month but also contains ads. But Disney+ is completely ad-free.
"When you've got a lot of insight, really, into the model, you make certain choices," Netflix CEO Reed Hastings said at a conference earlier this month with regard to whether advertising makes sense for Netflix. He was keen to point out Disney's decision not to include ads in Disney+ despite its success with ad sales on Hulu. He used it as an example of why he thinks offering an ad-supported version of Netflix isn't the right strategic move for the company.
Indeed, an ad-free experience is a premium experience. That provides strength for a brand, something Disney and Netflix certainly want to communicate, and something analysts are worried AT&T (NYSE: T) might erode with the introduction of an ad-supported version of HBO Max in 2021. Ad-free is also more appealing to consumers if there's not a significant difference in price. (Consumers have shown a willingness to tolerate ads if they see value in the form of lower subscription pricing.)
Source Fool.com