HBO (T) is reportedly preparing a new price tier for its fledgling streaming platform.
According to CNBC, HBO MAX is mulling a $9.99 per month, ad-supported offering to supplement its current subscription. Set to air in June, the new price point is $5 less than the current $15 option, but still more expensive compared to other AVOD (advertising-based video on demand) services like Peacock ($5 / month) and Paramount Plus ($6 /month).
WarnerMedia responded to Yahoo Finance that the company is not commenting on or confirming the report.
However, at least one analyst has expressed a few concerns about the idea, pointing out that HBO's ad model would be richer than other offerings on the market.
"These types of services are about reach so I'm definitely worried that [HBO Max] is pricing themselves out of that AVOD target audience," Joe McCormick, senior associate at Third Bridges, told Yahoo Finance.
Furthermore, the rumored $10 option will keep HBO original content — from "The Sopranos" to "Game of Thrones" — completely ad-free.
"This could potentially cause a savvy HBO fan to convert down from the $15 premium membership," McCormick explained — a secondary worry on top of iffy AVOD consumers.
Overall, the main difference with the ad-supportive offering will be users' access to same-day theatrical releases, like "Dune", which currently remain on the platform for 30 days.
Warner Bros. famously said it would return to traditional theatrical releases in 2022, but with a shorter window of just 45 days.
"It's early days so nobody really knows how consumers are going to react, but it does seem very expensive relative to what else is out there currently," McCormick said.
Adding subscribers as competition turns fierce
The proposed ad-supported offering comes at a time when streaming giants are racing for subscribers as the COVID-19 boom fades.
Last week, Netflix (NFLX) reported first-quarter subscriber growth that came in sharply below expectations, with user growth slowing even more than anticipated following a record year during the pandemic. Shares sank about 10% in a knee-jerk move following the results.
"There's an expectation of a slowdown, so [HBO] lowering the price might be a way to reinvigorate the growth in terms of giving the price-sensitive customer a reason to look at Warner Media," McCormick explained.
But, "I do think timing wise [HBO Max] is a little bit behind the other players, especially if they want to be in the conversations with advertisers and not be left behind," he added.
Currently, HBO and HBO Max have a combined global total of 64 million subscribers. Warner Media expects between 67-70 million subscribers by the end of 2021 — a realistic goal, according to McCormick, as the platform will be adding more high-interest content over the next year.
"The biggest draw to streaming seems to be the highest-desirable content, not so much the price. That's what pulls the subscriber in," he said, explaining that high pay-outs often equal high value.
Most recently, Netflix reportedly spent upwards of $450 million to secure the rights of the next two sequels for "Knives Out" — one of 2019's biggest hits. If confirmed, the deal would be one of the largest movie streamer deals in history.
In addition, the streamer walked away with 7 total wins at this year's Oscars ceremony, the most out of any other production house.
But that doesn't mean other streaming powerhouses can't catch up.
According to a recent research from UBS, which looked at the top downloaded IPTV services on the market, HBO Max has climbed ahead of the competition. The platform jumped from number 3 in February 2021 to number 1 in March 2021 — its highest ranking ever.
Buzzy content including a much-anticipated "Friends" reunion, a new "Sex and the City" reboot and the Golden Globe-winning series "I Know This Much Is True" could have contributed to the spike, as more users weigh quality over price point.
Editor's Note: This article has been updated to include WarnerMedia's response to the report
Alexandra is a Producer & Entertainment Correspondent at Yahoo Finance. Follow her on Twitter @alliecanal8193
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