By Sam Boughedda
In a note on the potential advertising upside for streaming services Disney (NYSE:DIS) and Netflix (NASDAQ:NFLX), UBS analyst John Hodulik outlined the potential areas of upside for the companies.
Disney+ ad-supported tier is expected to go live later this year, while Netflix's ad-supported subscription is expected in 2022 as well.
Hodulik told investors that to "improve monetization and expand addressable markets, Netflix and Disney+ will join the rest of the field in launching ad-supported tiers in the coming months. With Hulu as the benchmark, we estimate Netflix's US launch could provide a 14% uplift to UCAN revenues and 6% to total revenues over time (analysis within).
"That said, the launch will entail a period of subscription revenue cannibalization and incremental costs as the business scales. For Disney+, lower engagement limits the potential monetization upside vs. peers (13 hours/mo vs. 31/mo for Hulu and 41/mo for Netflix per comScore LTM) but we expect the product to see strong initial demand from advertisers and command premium CPMs. We estimate the ad-tier could provide a 24% uplift to US Disney+ revenues and 11% to D+ globally."
The analyst said advertising is just one example of new monetization avenues streaming services are pursuing, which also includes international launches and password sharing. Hodulik said the change in direction comes as growth moderates and investor focus shifts from subscriber targets to long-term economics.