In the first week of June, HBO Max plans to launch its new ad-supported tier of the streaming video subscription service. Priced at $9.99 a month, this less expensive version may attract a new group of subscribers who are price sensitive and willing to sit through ads for two-thirds of the cost. The ad-free version of HBO Max launched May 27, 2020; it is available for $14.99 a month.

WarnerMedia revealed details of the new service at its May 19 upfront event. According to current CEO Jason Kilar, HBO Max with Ads will be “the most brand-safe, elegant experience for advertisers,” reports Variety.

Aside from the ads, one key difference between the ad-supported and ad-free tiers of HBO Max will be premieres of Warner Bros. movies, at least for 2021. Warner Bros. movies will debut on the ad-free tier of HBO Max, but not the ad-supported tier. In addition, HBO will not show ads during its own programming, regardless of the tier.

New ad formats

HBO Max with Ads will include new ad formats. For example, at launch, advertisers can buy a “brand block” so viewers will see limited commercials. This is similar to Peacock which sometimes has an ad sponsor for a particular program to limit the commercials played during a show or series.

Additional formats include “pause ads” that show an advertisement when a viewer pauses the content and “branded discovery” where marketers can buy ad space that viewers will see when try to find a show to watch through the recommended programming feature. “Pause ads” is a nonintrusive technique that Hulu uses. When watching a show, if a user pauses the content, an ad appears on one side of the screen to be displayed until the program resumes.

“HBO Max With Ads provides a superior marketing environment, featuring the lightest ad load in the streaming industry, driving engagement with consumers and efficacy for our partners,” said JP Colaco, WarnerMedia’s head of advertising sales said in a statement. “Couple that with beloved premium content spanning all genres and audience segments, and we are delivering the best ad offering available in market today.”

Will ad-supported tier “steal” subscribers?

It is possible that some of HBO Max’s ad-free subscribers could move to the lower-priced ad-supported tier, but at the investor conference, Kilar said he wasn’t worried. The company makes the same margin, regardless of the tier someone subscribes to. Also, having two tiers provides WarnerMedia – soon to merge with Discovery, Inc. to form a brand new company – with two revenue streams: subscription revenue from both tiers and advertising revenue from the ad-supported tier. This revenue diversification will make the company more financially sustainable.

Pricing

HBO Max’s ad-supported tier is priced higher than similar streaming services, and it does not offer free trials.

AT&T to spin off WarnerMedia

The new information from WarnerMedia comes just days after AT&T announced it would spin off WarnerMedia and merge with Discovery, Inc. in a deal worth an estimated $43 billion. The deal isn’t expected to close until the middle of next year, but in the meantime, the companies are working out the details. Discovery president and CEO David Zaslav will lead the new entertainment company, which has not yet been named. There is no clear word on whether Kilar will stay on in some capacity or be offered a separation package.

Insider Take

At the end of March, HBO and HBO Max had a combined total of 63.9 million subscribers. Though WarnerMedia doesn’t announce figures from the two separately, Statista reports that, in 2019, before the launch of HBO Max, HBO had 43 million subscribers. This indicates that HBO Max is gaining traction, and offering an ad-supported tier makes the streaming service more affordable to more people. Though HBO Max is still priced higher than its competitors, this isn’t a deal breaker for non-price sensitive consumers. Unfortunately, HBO Max doesn’t offer a free trial, so there isn’t a way for potential subscribers to try the service before they buy. Free trials can potentially attract new prospects, but Netflix and Disney Plus continue to grow despite discontinuing their free trials last year.