The news that HBO Max will produce an advertising-supported offshoot next year represents the latest iteration of a movement toward hybridized streaming video economics.
CBS All Access, Hulu and NBCU’s Peacock are among the providers enabling customers to select from price points and service options that vary in terms of the advertising mix. At the high end, Hulu’s $12/mo tier vanquishes advertising entirely, as does the CBS All Access ad-free option costing $4/mo more than the $6/mo entry level.
AT&T CEO John Stankey recently affirmed that HBO Max will join these ranks when it launches a commercial-inclusive version of HBO Max sometime next year. Introducing an ad-supported offshoot makes sense for AT&T, which has a large advertising business within WarnerMedia that will likely exploit the audience-targeting opportunities tied to a premium streaming service. As for the economics, we believe roughly 25%-30% of SVOD subscribers gravitate to advertising-free tiers, based on comments from executives at CBS and Hulu. A reflection of advertising’s revenue contribution can be seen in the fact that Disney’s Hulu averaged $12.06 mo in revenue per account in the first quarter — an amount that’s much higher than the prevalent $6/mo price.
Next? Who’s next? Streaming kingpin Netflix has long avowed that it has no interest in adding an advertising-supported option, although investment analysts including Needham & Co.’s Laura Martin have opined that in the long run the company has little choice but to add a secondary revenue stream to help achieve ROI on enormous content investments. Among other SVOD providers owned by companies with established advertising sales groups are Fox Corp. (Fox Nation); AMC Networks (Acorn TV, Shudder, Sundance Now); and WarnerMedia itself (Boomerang, DC Universe). But there are exceptions, too: WarnerMedia’s Crunchyroll has abandoned a free, ad-supported tier, turning to a subscription-only model.
Besides any subscription-based providers that decide to add commercial-inclusive options, it’s possible the movement could happen the other way. Newer AVOD services such as Fox’s Tubi, CSS Entertainment Inc.’s Crackle Plus and even Viacom’s Pluto TV conceivably could explore development of lower-priced subscription tiers for premium/original content or commercial-free subsets of their streams. Rights arrangements could hinder these efforts, but in the long run, we would expect to see more hybrid business models emerge in the broader streaming environment as owners seek to monetize their investments.