• by Karlene Lukovitz  @KLmarketdaily, June 1, 2021

The ad-supported tier of HBO Max is set to debut this week, a year after the launch of the ad-free version. 

We know it will be priced at $9.99 per month, or $5 less than ad-free HBO Max. 

The company has promised “the most premium content” in any ad-supported streaming service. Ad-supported users will have access to the full HBO Max content catalog, with one big exception: The Warner Bros. movies that will be available to regular HBO Max subscribers on the same days that the films debut in theaters, at least through the end of this year. 

We know that WarnerMedia has vowed that the service will have “the lightest ad load in the streaming industry”: four minutes or fewer*. Competitor NBCUniversal has declared five minutes as the maximum ad load per hour for the ad-supported version of its Peacock service. 

However, it’s unclear if WarnerMedia is including non-traditional commercial formats in its definition of “ads” in the ad load.

We do know that the AVOD will feature ad formats including “pause ads” that appear during content pauses (as seen on Hulu), and “branded discovery” ads that appear within the content-discovery process on HBO Max. Also, that advertisers will be able to buy time in “brand blocks” of content, an option said to enable the touted “limited commercial experience” for viewers.

WarnerMedia has also said it will not run ads during original HBO content.

HBO Max with ads will be “the most brand-safe, elegant experience for advertisers” in the industry, WarnerMedia CEO Jason Kilar declared in a recorded presentation shown during WarnerMedia’s upfront in May. It will “elegantly [connect] brands to the premium, iconic IP that defines this service,” echoed Tony Goncalves, executive vice president and chief revenue officer. 

The company’s head of ad sales, JP Colaco, reported that deals have been signed “with most agencies and brands across the diverse array of categories” for HBO Max with ads. And back in March, AT&T reported that it had already secured $80 million in upfront ad commitments for the service.

In addition, AT&T CEO John Stankey has stated that the new AVOD’s subscribers will be “accretive in the same ways” to the company’s business as subscribers to the ad-free version.

Clearly, the company has determined that the incremental ad revenue — particularly with OTT/CTV’s relatively high CPMs, and a platform that WarnerMedia believes can be used to expand the subscriber base. thus supporting ad pricing increases over time — will significantly outweigh any risk of  cannibalizing the potential pool of full-price, no-ads subscribers. On the contrary, the strategy is, in theory, a win/win one on the bottom line: Convert some with-ads subscribers to the more expensive no-ads version, and drive up the average revenue per user (ARPU) on the (hopefully) higher-volume with-ads customer base by selling premium-priced ad formats.

MVPDs are said to be concerned about making less per subscriber on the lower-priced HBO Max AVOD, but if WarnerMedia can deliver a high enough ARPU (some say at least $14.99) for the AVOD, pay-TV distributors may be able to sell ad inventory at rates high enough to make up for their smaller net on the lower-priced subscription. In April, Stankey described ad-free HBO Max’s ARPU of $11.72 as “really impressive.” 

What else can we expect from Max with ads?

No programmatic ad buying access, or only limited-capacity access, at launch, “in order to maintain control over creative audit and ad experiences,” according to Joe Hirsch, CEO of independent ad-serving platform SpringServee.

The tier’s “customized,” light-load ad experience will indeed likely mean fewer ad breaks and more sponsorships, he agrees.

And while the AVOD will likely prioritize reducing churn over monetization during its launch phase, that will be ”followed by a steady redistribution of balance between ad experience and monetization,” Hirsch predicts. 

*This has been corrected. The original incorrectly stated that the actual number of ad minutes had not yet been revealed.