Disney and Paramount Explore Free Tiers as Streaming War Shifts

Disney and Paramount Skydance are exploring the addition of free, ad-supported tiers to their subscription streaming services, Business Insider reported, a strategy that could redefine the next phase of the streaming wars as free platforms like YouTube and Tubi capture a growing share of TV viewership.

YouTube and Tubi, along with other free ad-supported TV apps, held a 19.1% share of US TV viewing in May, up from 17.2% a year earlier, according to Nielsen. Paid streamers have largely resisted free offerings beyond limited episode samples.

A genuinely free, advertising-funded tier is entirely feasible and could serve as a meaningful differentiator, said Paolo Pescatore, media industry analyst at PP Foresight. Consumers are becoming more selective about subscriptions, he said.

The strategy carries risk. A free tier could cannibalize subscription revenue if paid users trade down, said Brandon Katz, analyst at Greenlight Analytics. Streamers must decide how much content to give away for free. Give away too little and consumers will not engage, Pescatore said. Give away too much and the company risks undermining the subscription model.

Disney has discussed allowing free access to select Disney+ content, a source familiar with the company's strategy told Business Insider. Katz said making some shows and movies free could help Disney extract more value from its content investments by driving viewership years after release.

Paramount+ is exploring a free tier through a feature known internally as the "free front porch," Business Insider reported. The free tier was listed as a Q3 product priority during a recent streaming town hall. A presentation said allowing free access could drive acquisition and winbacks of previous customers.

I'm surprised that it hasn't happened already, said Alan Wolk, media analyst at TVREV. He said all streamers should do it, otherwise they are ceding ground to FAST services that could be theirs. Paramount already operates its own FAST service, Pluto TV.

In a crowded TV landscape, offering free episodes of older shows or samples of new seasons is a way to keep awareness going, Wolk said. Streamers can get viewers in the habit of watching their libraries and then upsell them on the full catalog.

Netflix has taken a more cautious stance. Co-CEO Greg Peters said on the company's second-quarter earnings call that Netflix must be thoughtful about cannibalization of paid tiers given its large US subscriber base. Making any content free could give customers a reason to cancel, he said. Peters said Netflix would need an effective scaled ads business before launching a free tier in any market. He said the company would continue to consider a free tier but has no near-term plans.

Pescatore said a free tier could be more compelling in markets where paid penetration is lower or where pricing is a significant barrier.

A potential glut of free ad-supported supply could challenge the streaming ad economy, said John Conca, media analyst at Third Bridge. If everyone offers something free, the ad economy becomes really challenging, he said.

Pescatore also noted that a free tier could alter perceptions of a premium service. Consumers might begin to see content as something that should be available without payment, he said.

There's not an ambient awareness of what's on TV like there used to be, Wolk said.