- HBO Max will charge $9.99 per month for its advertising-supported streaming service, which will launch in June, sources say.
- HBO Max's ad-free version costs $14.99 and debuted in May 2020.
- Pay-TV distributors are displeased with the lower-cost product but are prepared to market it to non-HBO customers and broadband-only subscribers.
AT&T's WarnerMedia plans to charge $9.99 per month for its advertising-supported HBO Max service, set to launch in June, according to people familiar with the matter.
The ad-free version of HBO Max, which debuted nearly a year ago, costs $14.99 per month. That's the same price HBO charges pay-TV subscribers who add the premium channel to their bundle.
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AT&T said last week HBO and HBO Max have a combined 44.2 million U.S. subscribers. AT&T has completely restructured WarnerMedia to better compete against Netflix and other streaming services. An advertising-supported service at $9.99 will allow HBO Max to stand out as significantly cheaper than Netflix, whose standard price is $13.99 per month. AT&T expects HBO Max and HBO to have between 120 million and 150 million subscribers by the end of 2025.
AT&T Chief Executive John Stankey told CNBC last week that HBO and HBO Max's average revenue per user of $11.72 in the U.S. has been "really impressive." He also noted the ad-supported HBO Max will expand the product's potential audience to more cost-conscious consumers.
"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," Stankey said. Giving consumers the choice of which version of HBO Max they prefer "is a strength" and "by no means an admission of something didn't work out the right way. It's always been the plan," he added.
WarnerMedia plans to only attach advertisements to programming that's exclusively available on HBO Max and won't muddy HBO shows with commercials, WarnerMedia CEO Jason Kilar has said. Early last year, WarnerMedia had preliminarily considered selling an advertising-supported product of just HBO Max content for $4.99 per month, but nixed that idea for a combined product with HBO, said two of the people, who asked not to be named because the discussions were private.
Kilar said last month the advertising-supported version of HBO Max won't include WarnerMedia's 2021 slate of feature films on the same day they're released in theaters. Kilar said last year the movies would appear in the ad-free version of HBO Max.
A $9.99 streaming service with ads prices HBO Max above its U.S. rivals that are also supported by commercials. Disney's Hulu with ads is $5.99 per month. ViacomCBS's Paramount+ is $4.99 per month. NBCUniversal's Peacock has a limited content version that's free with ads. The ad-supported full slate of programming is $4.99 per month.
A WarnerMedia spokesman declined to comment.
Pay-TV distributors haven't been pleased with AT&T's decision to sell an advertising-supported HBO product at $5 less than HBO, according to people familiar with the matter. Distributors share revenue with HBO for subscriptions sold at anywhere from 30%-60% depending on size, the people said. An operator such as Comcast would take in nearly $9 of a customer's monthly $15 charge.
With an advertising streaming service, pay-TV distributors will likely get a lower wholesale revenue-sharing percentage but will get other benefits such as advertising inventory, two of the people said. HBO hopes to deliver average revenue per user at close to $14.99, if not higher, for its advertising-supported product. If it can, the advertising inventory that converts to distributors may be valuable enough to make up the different in revenue-sharing loss, one of the people said.
Most distributors are prepared to accept the product at its $9.99 price and market it to non-HBO subscribers and broadband-only customers, three of the people said. AT&T reached carriage deals for HBO Max with Amazon and Roku, the leaders in streaming distribution, after months of difficult negotiation. One of the major hurdles in both deals was how to handle the advertising-supported service, the people said.
With both deals complete, WarnerMedia won't need to go back to Roku and Amazon to guarantee distribution of the advertising-supported product, the people said.
Disclosure: Comcast's NBCUniversal is the parent company of CNBC.