The Walt Disney Company is considering a plan to introduce a lower-cost, ad-supported version of the Disney+ streaming service in the US, The Information reported March 3.

Update: Disney confirmed Friday (March 4) that it will introduce an ad-supported version of Disney+ for the US in late 2022, and expects to expand it internationally in 2023. The ad-supported tier is a "building block" to hit a target of between 230 million to 260 million Disney+ subscribers by the company's fiscal Q4.

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(Source: Jack Sullivan/Alamy Stock Photo)

"Expanding access to Disney+ to a broader audience at a lower price point is a win for everyone – consumers, advertisers, and our storytellers," Kareem Daniel, chairman of Disney Media and Entertainment Distribution, said in a statement. "More consumers will be able to access our amazing content. Advertisers will be able to reach a wider audience, and our storytellers will be able to share their incredible work with more fans and families."

Rita Ferro, president of advertising at Disney Media and Entertainment Distribution, noted that more details will be shared with advertisers at Disney's Upfront presentation. Pricing for the ad-supported Disney+ will also be announced at a later date, the company said.

The Information reported that the general idea behind the move is to to generate more subscription activity by opening up Disney+ to a broader market amid a possible rate hike on the service, and to boost profitability for Disney's direct-to-consumer (DTC) business.

Losses at Disney's DTC business reached -$593 million in the company's fiscal Q1, widened by 34% from the year-ago quarter due to higher programming, marketing and technology costs. However, growth at Disney+ bounced back as it added 11.7 million subscribers in Q1, ending the period with 129.8 million.

Although Netflix, Amazon Prime Video and Apple TV+ have so far avoided the ad-supported route, several other premium subscription VoD streaming services do offer discounted, ad-supported tiers. That group includes HBO Max, NBCUniversal's Peacock, Paramount+ and even Disney-owned Hulu.

It's not yet clear what kind of discount Disney has in mind for an ad-supported form of Disney+. Following a $1 rate increase in 2021, the current ad-free Disney+ service runs at $7.99 per month. Disney CEO Bob Chapek warned last month that another price hike could be coming for Disney+ as the service tacks on more original, exclusive fare.

By way of comparison, HBO Max offers an ad-supported tier for $9.99 per month or $14.99 per month without ads. Peacock markets an ad-free tier for $9.99, a $4.99 ad-supported premium tier, as well as a free, ad-based tier that's paired with a smaller content library. Hulu's ad-free SVoD tier fetches $12.99 per month, or $6.99 per month with ads.

In Hulu and ESPN+, Disney already has access to the ad-tech infrastructure that it could seemingly apply to Disney+. However, Richard Greenfield, analyst at LightShed Partners, wonders if an ad-based version of Disney+ might pave the way for a combination of Disney+ with Hulu.

Disney currently offers a discounted bundle of Disney+, ESPN+ and the Hulu's SVoD service for $13.99 per month (with Hulu's ad-supported tier), or $19.99 per month (with Hulu's ad-free tier).

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— Jeff Baumgartner, Senior Editor, Light Reading