Could Uptick in Ad Revenue Prevent More Shows and Movies Being Pulled from Max?
Direct-to-consumer revenue is up 70% year-over-year for Warner Bros. Discovery, and the ascendence of the ad tier of Max is a big reason why.
By now, even those who don’t follow big media companies closely likely know that Warner Bros. Discovery CEO David Zaslav is a man singularly focused on the bottom line. Zaslav’s two-year tenure as head of WBD has been marked by numerous periods of frugality from the company, which is hardly surprising considering the 2022 merger of WarnerMedia and Discovery created a firm with more than $40 billion of debt. Content cuts became a part of life for the company’s streaming service that was known as HBO Max when Zaslav took over, and viewers lost access to everything from “Westworld” to episodes of “Sesame Street” as the company tried to slash its way to better financial standing. HBO Max first launched its ad-supported plan in 2021, but the service has only recently seen this plan become an important source of revenue. As it continues to grow, the ad plan of the streamer now called Max could well prevent WBD from carrying out another round of Draconian content cuts.
Key Details:
- Ad revenues were down 7% for WBD in its most recent quarter, but revenue from its direct-to-consumer segment has risen 70% year-over-year.
- WBD executives say the increase in use for the ad plan is due to a focus on keeping it a premium watching experience for viewers.
- Recent reports indicate the company is still looking to cut costs, but more success from its streaming platforms could prevent cuts in that direction.
As of the end of March, WBD had 99.6 million streaming customers. The company does not break out how many viewers are on Max versus how many are on discovery+, nor does it specify how many viewers are using the ad-supported and ad-free plans. But in an interview with Deadline, WBD’s streaming head J.B. Perrette touted how well the ad plan has done so far, despite being launched just three years ago.
“We’re total babies with this part of the business,” Perrette said. “But we’re finding that we’re very well-positioned in the marketplace when you look at streaming prices going up and consumer sensitivity to price.”
The company’s head of digital ad sales Ryan Gould echoed Perrette’s sentiments, saying that the plan has “come a long way” since its launch. He says that the uptick in use of the ad plan on Max is thanks in large part to the “ultra-premium user experience” offered by the streamer, which is something customers who are familiar with HBO’s prestige programming have become used to.
Part of that premium experience is ensuring that HBO originals are not interrupted by ads during playback. The ad plan of HBO Max originally showed no ads alongside HBO content at all, but WBD tweaked that arrangement in 2022. Viewers now have to put up with a longer, unskippable ad before HBO originals start playback on Max, but once viewing begins, the title proceeds uninterrupted, which is an experience few other streaming platforms offer with their original content.
Will Revenue Increases Matter to Zaslav?
While total ad revenue for WBD fell 7% in the first quarter, revenue generated by the direct-to-consumer (DTC) segment rose 70% year-over-year. WBD officials have attributed much of that increase to Max’s ad plan and said that by the end of 2023, around half of all net new subscriptions were for this tier specifically. Antenna released data this week that shows 38% of new Max subscriptions in Q1 were for its ad plan, but its dataset measures gross subscriptions, not net, which could help reconcile its number with WBD’s.
The company’s streaming segment was profitable for the second quarter in a row in Q1, but only time will tell if it’s enough to keep Zaslav from jettisoning more content. But if there are more culls to be made, they likely won’t be as drastic as those from 2022; when analysts questioned whether Zaslav risked damaging the company's premium brand by mothballing nearly-completed projects like “Batgirl” and canceling shows like “Westworld” and “Minx.”
No matter what the future of Max’s ad-supported tier holds, there are more cost-saving measures on the way for WBD. Recent reports indicate that the company will raise the price of Max for the second time in its history at some point this year, and that WBD is also planning to introduce rules forbidding password-sharing in 2024. A new bundle with Disney+ and Max could also bring a new cohort of subscribers to the streamer. These could be potent revenue generators for Max if recent success by Netflix in limiting the sharing of accounts is any indicator, and they could be enough to allow WBD to justify taking chances on shows and movies it would have considered not worth funding two years ago, or at the very least convince the company to put away its scythe as it eyes its streaming catalog for weaknesses.
It’s hard to predict what Zaslav will do to stem the tide of declining linear revenues at WBD. Max is now officially part of the solution instead of being a revenue-draining problem for the company, and the increasing success of its ad plan could mean there are fewer massive streaming content cuts from WBD as it seeks to continue improving its balance sheet.
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