The media giant is looking to curb accelerating streaming losses and launched Disney's Ad tier on Thursday.
In their first year of operation, analysts say that Disney is expected to generate anywhere from $500 million to up to $1 billion in ad-supported revenue on the Disney product, according to Geetha Rangathan, an analyst at Bloomberg Intelligence.
Ad-supported revenue has gone up by up to $3 billion over the next three years, reiterating her confidence in the media giant amid its early streaming success.
DTC revenue came in at $10.55 billion for the full year 2020, before surging to $16.32 billion in 2021 and $19.56 billion in 2022. Advertising revenue for Disney's DTC unit increased from $2.36 billion in 2020 to $3.73 billion in 2022.
The ad load will be conservative at first, about 4 minutes of ads per hour or less, according to the company. That is about half of Hulu's 8 minute-per-hour ad load and even less compared to the 15 minute-per-hour standard of linear television.
Disney hasn't released any commercials featuring alcohol or competitor content, as well as no political ads.
Almost 70% to 75% of Hulu's subscriber base is on the ad-supported version, so ads have been a huge hit with Hulu, the analyst said. I think it's going to be a little bit different with Disney but we can expect to see at least a third of the user base convert to that ad-supported product over time. Industry experts argue that offering lower-cost, ad-supported options is an important hedge against churn, something that all streamers want to avoid due to increased competition.
As Disney looks to leverage its ad tier, CEO Bob Iger hopes that the debut will help soften investor sentiment, as Disney shares are off more than 40% since the start of the year.
In its most recent fiscal year, losses for Disney's direct-to consumer unit, including Disney Hulu, and ESPN, totaled $4 billion.
Iger, who spoke to employees at a company-wide town hall last week, said there was no plans to reverse the hiring freeze put in place by Bob Chapek earlier this month, as he continues to evaluate Disney's current cost structure.
Alexandra is a senior entertainment and media reporter at Yahoo Finance. Follow her on Twitter and email her at alexandra.canalyahoofinance.com.