Will HBO Max's $9.99 Ad-Supported Streaming Service Present A Threat To Netflix?

AT&T Inc T subsidiary WarnerMedia — which in turn owns HBO Max — is planning to charge $9.99 per month for an advertisement-supported version of its streaming service, CNBC reported Wednesday.

What Happened: HBO Max without advertising costs $14.99 per month, which is equivalent to what the subscribers of the company’s pay-TV subscribers with premium bundles pay.

AT&T CEO John Stankey said that the HBO Max’s ad-supported version will expand the service’s reach to include those who are more cost-conscious, as per CNBC. 

“Whether a customer chooses to buy the ad-supported product or buy the straight subscription product, it’s accretive in the same ways to our business,” said the executive.

Stankey said the rollout of the ad-supported model is “by no means an admission of something didn’t work out the right way. It’s always been the plan.”

People familiar with the matter told CNBC that most distributors are willing to accept the ad-supported service at its $9.99 price and market it to both non-HBO subscribers and broadband-only customers.

AT&T has reached carriage deals for HBO Max with both Amazon.com, Inc AMZN and Roku Inc ROKU, and as such has no need to return back to the duo to guarantee distribution, as per CNBC’s sources.

Why It Matters: An advertisement-backed HBO Max might prove to be a threat to subscriber video-on-demand arena's dominant player Netflix Inc NFLX.

An advertising-supported version of HBO Max will be priced significantly cheaper than Netflix’s service, which costs $13.99 per month.

See Also: Why BofA Analyst is Bullish About AT&T Stock After Earnings Report

In Deloitte's 15th edition of the “Digital Media Trends Survey,” only 40% of those polled were willing to pay a $12 subscription fee for watching video entertainment without advertisements.

The survey tracked five generations from Gen Z to Matures, aged between 14 to over 75 years.

Generational Preferences Regarding Advertising On Streaming Video, Source Deloitte's Digital Media Trends, 15th edition.

Fifty-five percent of those polled said they carry an ad-supported video service. 

A survey by The Trade Desk indicated that TV consumers in America favor ad-supported streaming over subscription-based streaming. 

“Overall, 35 percent of these consumers would rather watch a free streaming service with advertising or some ads for a cheaper subscription, versus 31 percent who would prefer to pay for a subscription with no ads,” noted the survey. 

As of the end of March, HBO/HBO Max had combined 44.2 million U.S. customers, an increase of 2.7 million year-over-year, according to the company’s first-quarter results.

In Q1, HBO Max had 9.69 million retail subscribers, an increase of 2.8 million from 6.88 million compared to the previous quarter.

Wholesale HBO Max and HBO customers through Comcast Corporation CMCSA and other distributors amounted to 30.94 million, an increase of 150,000. However, Legacy HBO subscribers fell by 308,000.

Price Action: AT&T shares closed nearly 0.6% higher at $30.96 in Wednesday's regular session.

Read Next: Netflix Staring At A Big Customer Churn, Deloitte Report Finds: What You Should Know

Photo Courtesy: WarnerMedia