Netflix introduced its ad-supported subscription tier in November of last year. Consumer response was tepid: Bloomberg reports, per leaked data, that Netflix had accrued roughly 1MM ad-tier subscribers two months after launch; Netflix had informed prospective advertisers that it forecasted 4.4MM subscribers by the end of 2023. This shortfall in ad-tier subscriptions actually led Netflix to return money to some advertisers, given the lower number of ad impressions available relative to expectations.

Disney launched an ad-supported tier roughly one month after Netflix did (Netflix: November 3rd; Disney+: December 8th). The two companies pursued different pricing strategies for their ad-supported subscription tiers: Netflix kept the price of its cheapest premium tier fixed and introduced the ad-supported tier at a lower price point, while Disney+ increased the price of its cheapest premium tier and introduced its ad-supported tier at the old reference price point. The above diagram depicts the pricing changes.

I contrast the ostensible motivations behind these pricing choices in Ads in streaming, differential pricing, and the pursuit of ARPU. From that piece:

Disney is pursuing increased revenue with a deliberate attempt to grow ARPU that very likely won’t result in net new subscribers; Netflix is pursuing increased revenue with a deliberate attempt to grow its subscriber base that will decrease ARPU. Even assuming no cannibalization of premium subscribers by Netflix’s new ad-supported tier or loss of current Disney+ subcribers who would rather churn than pay more money or be exposed to ads, these two strategies represent different sides of a bet on the total addressable market of a subscription service.

According to subscription analytics company Antenna, 19% of all new US-based Netflix subscribers purchased the ad-supported tier in January 2023, three months after its launch. This compares to 36% of all new subscribers to Disney+ on the three-month timeline from the launch of the ad-supported tier.

Disney’s fiscal year ends at the end of September; the company revealed in its Q1 2023 results for the quarter ending December 31, 2022, that ARPU for Disney+ decreased by 3% globally and by 2% in the US relative to Q4 2022 (which ran through October 1st, 2022), although the price increase was live for less than one month in the quarter. Disney attributed the decrease in ARPU to currency headwinds and an increased share shift for multi-product streaming packages in its earnings call:

Disney+ core ARPU decreased by $0.19 versus the prior quarter, driven by an unfavorable foreign exchange impact and a higher mix of subscribers to our multiproduct offerings, partially offset by a benefit from the recent domestic price increase, which occurred toward the end of the first fiscal quarter…Disney+ core ARPU will continue to benefit in the second quarter from the domestic price increase. And while it’s only been two months since the launch of the Disney+ ad tier, we are pleased with the initial response, which includes continued demand from top-tier advertisers. As I mentioned last quarter, we do not expect the launch of the Disney+ ad tier to provide a meaningful financial impact until later this fiscal year.

Netflix similarly saw ARPU decline in Q4 2022, by 3% globally and by nearly 1% in the US. Netflix’s ad-supported tier was introduced in November and would naturally cause ARPU to decrease on the basis of the company’s subscription mix shifting to include lower price points. When Netflix first announced its ad-supported tier, the company claimed that the ARPU impact of users switching from its cheapest premium tier ($9.99/month) to its ad-supported tier ($6.99/month) would be “neutral to positive,” accounting for the revenue contribution of ads. I questioned that assumption at the time, and it’s hard at this point to determine if this will ultimately be the case:

• Netflix’s ad-supported tier was live for less than two months in Q4, meaning the data is immature;
• Netflix couldn’t fully deploy the ad budgets that were committed to it by advertisers, although it now claims that it can, per Bloomberg reporting. Increased ad spend will presumably lead to an improvement in ARPU values.

Ultimately, a decrease in ARPU isn’t a negati