The ink is far from dry on the merger announcement between WarnerMedia and Discovery, but that isn’t stopping executives from both sides making arrogant public statements that may come back to haunt them. HBO Max’s Andy Forsell is the latest to drink from a potentially poisoned chalice as the video streaming platform’s EVP and GM declared that the new ad-supported version of HBO Max has a far greater total addressable market than Netflix.
Getting people to pay for premium ad-free video streaming experiences is a proven business model, while getting consumers to pay for ads is a growing phenomenon that we consider still very much in the trial stages. HBO Max’s ad-supported tier costs $9.99 a month, $5 less than the ad-free version and the same as Netflix’s Standard monthly subscription. Despite this, Forsell still believes Netflix has defined a “ceiling” on the full potential penetration an SVoD service can achieve in the US market. He believes the optimum target for an SVoD service peddling both ad-free and ad-supported tiers should be at least 100 million homes in the US.
With 130 million households in the US today, achieving a 77% penetration rate is a pipedream. Free streaming services don’t even hit that kind of penetration. Netflix has approximately 75 million subscribers across both North American countries, about 36% of its total global subscriber base, so suggesting that the world’s most successful SVoD has underperformed by total addressable market due to its refusal not only to introduce ads, but to get subscribers to pay for ads, is an insult to the entire industry.
We see these comments as Forsell attempting to flex HBO Max’s muscles in front of a prominently financial audience, speaking at last week’s Barclays Future of Media Conference. His ramblings should be taken with a pinch of salt, as should the recent comments from Discovery CEO David Zaslav, about the merged company targeting an insane 400 million subscribers.
On that front, Forsell said, “In the very big picture, none of us should be surprised to see some consolidation. I just think of it in the long term – 10-plus years, maybe even 15 – you’re going to have a very small number of global services that have 300 million to 400 million global subs, and thrive economically.” While Forsell may appear to be backing up Zaslav here, the latter’s overexcitable comments suggested 400 million was an achievable target within the next few years post-merger, while Forsell has placed the very minimum target at a decade, speaking within just days of each other.
Forsell has projected that ad-supported HBO Max will take off around February 2022, when the two tiers are due to achieve more “content parity”. He will also be hoping most of the industry has forgotten about his comments by then.
However, HBO Max claims to run approximately 4 minutes of ads per hour of content, compared to Paramount+ which runs 10 minutes of ads per hour of content (both offering $5 off ad-free subscriptions).
In addition to getting ads for $5 less a month, HBO Max subscribers on the new tier will have streaming resolutions capped at 1080p, much like Netflix’s Standard tier, while ad-supported subs also aren’t able to download content for offline viewing.
If our criticism of a paid OTT video platform with advertising sounds familiar, that’s probably because we painted Quibi with a similar brush when others were too busy praising the apparent uniqueness of Jeffrey Katzenberg’s bite-sized offering. We all know how that one ended.