Disney and Netflix are turning to advertising on their streaming platforms to shore up their profits, but the rollout may be less smooth than expected. Both platforms are hoping the merchant points will help them generate long-term profits after Netflix’s final two-quarter earnings results showed years of rapid subscriber growth may have finally been reached. climax. In the most recent quarter that ended in June, Netflix said it lost about 1 million global subscribers, a staggering number, but better than investors expected. The companies have announced that they will announce ad support levels over the next 12 months. Disney will roll out an ad-supported plan on December 8 that will cost the same as its current ad-free plan. At the same time, the price of the ad-free plan will increase by $3. Meanwhile, Netflix is partnering with Microsoft and expects to launch an ad-driven plan in early 2023. “That means each streaming service will have two revenue streams – which is better. for the economy because streaming is losing money,” said Needham analyst Laura Martin. However, Disney and Netflix will face challenges, including a tougher macro backdrop and expectations of slower ad growth, as they try to deliver on their promises. In its most recent report, marketing firm Dentsu slightly lowered its global advertising investment forecast for 2022, from 9.2% to 8.7%. Netflix shares are about 37% higher this quarter, though they’re still down about 60% in 2022. Disney is up 31% in the third quarter, while still down 19% this year. Disney For some, Disney’s decision to roll out an ad-supported tier for the same price as their current ad-free plan came as a surprise. In December, Disney+ with ads will be $7.99 per month, while the price of the ad-free viewing experience will increase by $3 to $10.99. It was a move that some on Wall Street said would increase turmoil on the platform. “We’re surprised that, instead of using an ad-based tier to make Disney+ more affordable and to grow its TAM, DIS is using it to increase DTC’s average monthly ARPU “, Needham’s Martin wrote in a recent note. “It’s a positive move in a crowded OTT market and the product came out late,” she added, referring to “over the top” – another term for services that provide media. online to consumers over the internet. “We worry this pricing strategy will cause Disney+ to lose connection.” However, Disney may have a clear vision of what subscribers can afford after studying advertising on one of its other streaming platforms: Hulu. The streaming platform, in which Disney shares a stake with Comcast, leads the market with its advertising model. Hulu has also helped Disney build its own service over the past few years. “We understand the market. We understand what it takes to launch a service with ads. We’ve built the technology to be able to deliver that service through our Disney ad server. We understand we’re going to roll it out slowly,” Rita Ferro, Disney’s president of advertising sales, said at a MoffettNathanson event, according to FactSet transcripts from May 18. Meanwhile, according to FactSet’s transcript from May 18. Atlantic Equities analyst Hamilton Faber, Disney may have been bullish on confidence after recently increasing the cost of ESPN+ from $6.99 to $9.99. The move results in minimal disturbance. The strength of ESPN+ is one reason why Daniel Loeb’s Third Point is pushing Disney to turn away from the sports platform. The hedge fund manager has also called on Disney to integrate Hulu into its Disney+ platform and “do whatever it takes” to acquire Comcast’s 33% stake in Hulu before the 2024 deadline. However, Disney will have to “Think a little harder” with advertising on Disney+, with a family audience, according to Kutgun Maral of RBC Capital Markets. “I think there’s going to be a natural limit to the content that they’ll at least put ads in initially,” he said. “At least right away, you know, you won’t have ads for certain kids shows or preschool shows, and that might limit your chances of making money initially compared to Hulu or comparison. with Discovery Plus, for example.” Netflix Not everyone believes Netflix will be able to meet its streaming goals. While Netflix is aiming to roll out an ad-driven model as early as 2023, Needham’s Martin believes the streaming giant “won’t enter the market with an ad-driven model until the second half of 23”. The analyst, whose rating holds the stock, said investors are better off using Netflix “as a source of cash to buy something different.” Needham’s Martin said Netflix, which partnered with Microsoft to build an ad-supported service, could fall behind its peers. “Disney has an ad sales force… Netflix doesn’t. That will be a big challenge,” she said. “They’re going to have to hire 20 people in this recruitment market, which is very difficult and takes a long time.” Others are also pessimistic. Pivotal’s Jeffrey Wlodarczak believes the most prudent move for Netflix is to sell its platform to Microsoft, saying Netflix doesn’t have a diversified enough business to outpace its competitors. “Last but not least, we remain concerned that unlike their competitors AAPL, AMZN, GOOG and DIS, NFLX does not have the alternative high-margin businesses they have. can monetize his streaming efforts,” he said. Disney and Netflix did not respond to CNBC’s request for comment. Other Players Tech giants Amazon and Apple are emerging as potential contenders in the streaming wars. Dentsu predicts $738.5 billion will be spent on advertising globally by 2022. Amazon already has about $35 billion in ad revenue, while Apple is in the process of building out its advertising platform, according to a report. Needham’s Martin. Unlike their rivals, Amazon and Apple have enough money to spend on content without caring about making a profit online. Martin wrote in a recent note: “AAPL and AMZN are the winners of the Streaming War (in our view) because they have virtually unlimited resources, the best of party data. First Walled Garden and leading technology team”. Disclosure: CNBC is part of Comcast’s NBCUniversal.