What The Streaming Industry Can Learn From HBO Max’ Ad-Supported Tier Launch

With Disney+ and Netflix each planning to launch lower-cost, Ad-Supported Subscription tiers in the coming months, it’s clear both companies are exploring a shift in strategy and opportunities for new revenue streams. As a result, investors, brands, marketers, and the industry at large are wondering how this will impact the current streaming landscape. To help answer that question, Antenna looked to HBO Max—which launched its own Ad-Supported lan roughly a year ago—to better understand the impact of Ad-Supported tiers on streaming video subscriptions. 

Antenna data indicates that adoption of HBO Max’ Ad-Supported video didn’t explode overnight, but rather grew at a more conservative pace. According to the data, HBO Max had 15.1M subscribers by the end of Q2’22. Of those, 1.9M or 12% are on the Ad-Supported tier. While that is a minority of the Subscriber base, since the inception of 2022 HBO Max has seen a marked increase in the percent of new Subscribers opting for the Ad-Supported plan. 

To the degree that HBO Max is a relative comparison for Disney+ and Netflix, the latter Services may realize their opportunity in advertising more steadily over time.

From its June 2021 launch to the end of 2021, HBO Max’ Ad-Supported tier was responsible for 18% of the Service’s gross additions. Importantly, the Warner Bros. theatrical slate was made available day-and-date on HBO Max—for Ad-Free Subscribers only—throughout 2021. 

Beginning in 2022, both Ad-Supported and Ad-Free Subscribers had access to the same content, regardless of Service tier. Antenna data indicates an increase in Ad-Supported adoption then, with the tier driving 29% (+11pts from 2H21) of 2022’s Gross Additions. This is an important detail, as Netflix reportedly renegotiates a portion of its programming deals with studios to allow for ads to be shown. 

Bear in mind that Netflix and Disney+ are already the two biggest Premium SVOD services currently measured by Antenna. Furthermore, both Services boast the lowest active monthly churn rates in the category— Netflix at 3.4% and Disney+ at 4.0%—which may indicate that existing Subscribers are pleased with the current price-to-value equation. Still, the yet-to-launch Disney+ and Netflix ad-tiers will open new revenue streams for each Service and potentially reinvigorate Subscriber growth. 

Specifically, the upcoming Ad-Supported tiers for Disney+ and Netflix may attract three types of Subscribers:

  • New Subscribers — users who never subscribed to the existing ad-free service, but may do so at a lower price point and tolerate ads;
  • Re-subscribers — users who move in and out of subscriptions to the existing service, but may be turned loyalists at a lower price point;
  • Downgrades — existing subscribers who may tolerate ads in favor of a cheaper monthly bill.

In the case of HBO Max, we took a look at the composition of its Gross Subscriber Additions since launching the Ad-Supported tier.

Over the past 13 months, Antenna data indicates the “New Subscriber” cohort has been responsible for the highest share of the Ad-Supported Gross Additions to HBO Max (44%), which signals that the Ad-Supported tier expanded the realizable market. The New Subscriber cohort is trailed by “Downgrades,” which made up 29%, andRe-subscribers” accounting for 27% of Gross Additions to the plan tier. 

How Disney+ and Netflix will price their Ad-Supported tiers remains an open question. For peer Services with Ad-Free and Ad-Supported options, the composition of Subscribers varies. The majority of Subscribers to Hulu, Peacock, and Paramount+ are on the Ad-Supported plans of each Service. Conversely, the bulk of Discovery+ Subscribers are on the Ad-Free tier. Importantly, as of August 2022, Discovery+ requires only a $2.00/mo. incremental fee to remove commercials — $4.99/mo. (Ad-Supported) and $6.99/mo. (Ad-Free). The other Services incremental fee to go Ad-Free is higher, ranging between $5.00 and $6.00 per month. 

If HBO Max is any harbinger for Netflix and Disney+, domestically we can expect a conservative, but steady march towards scale. New Subscribers (i.e. users not observed subscribing to and canceling the Service in the past) are likely to drive the highest share of Ad-Supported Gross Additions versus Downgrades (i.e. users who had previously subscribed to and canceled the service) and Re-subscribers (i.e. users who were subscribed to the ad-free tier and changed to the ad-supported tier). Lastly, the composition of Subscribers by plan tier will be inextricably linked to price. Antenna will continue to monitor the situation closely. 

More information on Antenna's methodology located here.

Brendan Brady is a Content Strategy Associate at Antenna, a measurement and analytics company providing insight into purchase behavior and subscription metrics across the new media landscape.