Walt Disney’s newly launched ad-based subscription tier (DIS) for Disney+ subscribers should strengthen the streaming platform’s competitive advantage, especially given the positive investor and user response to Netflix’s ad-supported plan (NFLX) announced last month. Disney began offering the new service Thursday, with more than 100 advertisers on board to help the burgeoning streaming platform become profitable by 2024. However, the new offering was engineered by former CEO Bob Chapek, who was pushed out of the company last month amid heavy losses for the streaming division. Now, with CEO Bob Iger back at the helm, the club wants to see how the Disney veteran will make his mark on streaming and what offerings he’ll prioritize. Disney+ subscribers now have the option for the basic Disney+ platform with ads for $7.99 per month or the premium option for $10.99 per month without ads. The streaming service also offers plans that include Hulu and ESPN+. As a precautionary measure, cable news network CNN shut down its streaming service CNN+ in April after just a month. The move came amid a corporate and management reorganization. Building and growing an industry-leading streaming service has cost Disney dearly. The entertainment giant has spent producing new content to keep existing viewers happy and attract new subscribers, a key metric analysts check when evaluating streaming’s growth potential. This tactic has worked as Disney+ subscribers soared to 235 million last quarter, surpassing competitor Netflix’s 223 million subscribers over the same period. However, content production costs account for about 70% to 80% of Disney’s total direct-to-consumer revenue, according to a recent note from Moffett Nathanson, which has hurt profitability. Disney’s streaming division suffered a $1.47 billion loss last quarter. Management still expects fiscal 2023 content spending to be around $30 billion, in line with the company’s spending last year, but expects losses to ease through fiscal 2023’s first quarter. At the same time, the success of Netflix’s new ad tier platform could signal a more profitable path forward for Disney. Wells Fargo on Friday upgraded Netflix to “Overweight” or “Buy” of equal weight for “improving” the content. Analysts at the bank said they were “optimistic” about the streaming giant’s new tier of advertising to help churn, or the rate at which customers are abandoning the streaming service. Disney’s shares, which had fallen nearly 40% year-to-date, rose about 1.6% to $94.06 a share as of Friday afternoon. Conclusion Launching Disney+ with advertising this week could be a great way to attract new, cost-conscious subscribers and therefore remain competitive in the streaming wars. Additionally, higher subscription prices combined with advertising may be drivers that will help increase profitability and allow Disney+ to meet its goal of making money from streaming by fiscal year 2024. The entertainment company has strained its balance sheet to invest in content production, but we’re hoping to see that spending ease over the next year, reducing the company’s debt burden and relieving some of the pressure on its stock price. Importantly, given the recent leadership change, we’re excited to hear Iger’s position on the future of Disney’s streaming service. We’re comforted by the fact that Iger has been with the company for decades, making him a steady hand and a great operator – but we want more color from him when streaming. Disney stock has given back gains made since Iger returned in late November. However, we continue to believe that Disney is an iconic brand and view the decline as a potential buying opportunity into weakness. (Jim Cramer’s Charitable Trust has long been a DIS. For a full list of stocks, click here.) As a CNBC Investing Club subscriber with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling any stock in his charitable foundation’s portfolio. When Jim spoke about a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS GOVERNED BY OUR TERMS AND CONDITIONS AND PRIVACY POLICY ALONG WITH OUR DISCLAIMER. NO OBLIGATION OR OBLIGATION SHALL BE OR CREATED BY YOUR RECEIVING OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC RESULT OR PROFIT IS GUARANTEED.
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Walt DisneyDIS’s newly launched advertising-based subscription tier (DIS) for Disney+ subscribers should strengthen the streaming platform’s competitive advantage, especially given the positive response from investors and users Netflix‘s (NFLX) ad-supported plan, which was released last month.