Will Advertisers Support An Ad-Supported HBO Max?

Big news: HBO Max launched their ad-supported version of HBO Max with 35 brands pledging $80M  in ad commitments.

Big question #1: Why does HBO Max want ads?

Quick answer: Advertising will increase average revenue per user (ARPU) beyond the $15/month subscription.

Monthly pricing tiers for HBO Max:
1) Ad-free – $15
2) Ad-supported – $10 (33% discount)

Monthly pricing difference for ad-free vs. ad-supported according to Axios:
1) Hulu – $12 → $6 = 50%
2) Peacock – $10 → $5 = 50%
3) Paramount+ – $10 → $5 = 50%
4) Discovery+ – $7 → $5 = 40%
5) HBO Max – $15 → $10 = 33%

Big question #2: How many hours of HBO Max does an ad-supported user need to watch for a $15 ARPU?

Quick math on the advertising model for HBO Max:
1) Ad minutes/hour – 3
2) 30s spots/hour – 6
3) CPM $ – ≈ $80
4) $/spot – $0.08
5) Ad revenue/hour – $0.48
6) ARPU > $15 @ 15 hours ($10.00 + $7.20 = $17.20)

FYI: HBO Max viewers watch 84 hours per month (2.8 hours/day), meaning only 18% of watch time would need to be ad-supported to generate 15 hours of advertising.

Hulu ARPU by subscription type according to PARQOR:
1) Ad-free – $12.00 ($12.00 + no ad $)
2) Ad-supported – $14.26 ($6.00 + $8.26 from ads)

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