People Like Ad-Supported SVOD, Analyzing WBD’s Q2 Results
1. People Like Ad-Supported SVOD
A new study from our friends at Hub Research reveals that people like having ad-supporter options on SVOD, especially if it means they can save some money.
Or at least that is what they tell whoever is asking
Still, the fact that sizable numbers of people seem not to mind the lower ad loads and lower prices on services like Netflix and HBO Max is a good sign for the industry overall, which needs the ad supported versions to succeed in order to make up some of the revenue it no longer gets from carriage and retrans fees.
These ad supported tiers have not been setting the house on fire with their new subscriber numbers, so the fact that people actually like them on both an actual and theoretical level is a good sign.
Whether that translates into a subscriber boom is another story.
Why It Matters
There’s always been a suspicion that, having convinced viewers of the superiority of ad-free viewing, the small amount of savings the SVOD services offered on their ad-free versions would not be enough to convince large numbers of people to make the switch. Especially when subscriptions were month-to-month.
It’s the old “for the price of a cup of coffee" argument— but in this case it would go something like "for the price of a single venti café latte each month, you can continue to enjoy Netflix ad free.”
It seems like a fairly compelling argument, but clearly there are enough people who'd rather have that extra latte.
Which is good for the streaming services, the ones tied to legacy media companies in particular, as they need to make up a whole lot of revenue they’re no longer getting from the MVPDs in the form of carriage and retrans fees.
It also calls up another group of people, the ones we've named “15,000 Merits” after the Black Mirror episode where people pay to avoid the omnipresent advertising.
Same theory here: there is a cohort of affluent, educated consumers who pay for the ad-free version of every subscription service they watch. And have ad blockers on their browsers. Meaning they are more or less unreachable… except on live sports. Which is why live sports will become so valuable in years to come. Especially to advertisers looking to reach that highly educated and affluent 15,000 Merits audience.
One last point: the success of ad-supported streaming will either prove or disprove the theory that people do not mind watching reasonable amounts of well-targeted advertising. And the corollary, which is that brands should thus pay more for it.
The test here is whether people actually like it or merely tolerate it because of the cost savings.
That’s something the research has yet to reveal.
What You Need To Do About It
If you are one of the ad-supported services, take this survey with a grain of salt.
Many grains of salt, actually.
People often say something in a survey because they think it sounds like a good idea, but then don’t follow through in real life. (Cord cutting is an easy example. Remember all those surveys about how many people were going to cut the cord? Not that people aren’t cutting the cord, but not nearly in the numbers they claimed they’d be.)
Also, resist the urge towards Death By 1,000 Cuts. Meaning every 15 seconds of ad time you slip in is just another reason for people to unsubscribe or subscribe to ad-free.
So don't go there. Because at some point you will lose those subscribers and you might never get them back.
2. Analyzing WBD’s Q2 Results
Overall, Warner Bros Discovery had a pretty good Q2. Revenue was still in the hole, but a much shallower hole than before—net loss was $1.2 billion versus $3.4 billion in Q2 2022.
EBITDA was up 23% YOY, which is something Wall Street tends to smile upon. On the other hand, revenue fell 4%, and neither revenue nor net income met expectations.
U.S. subscribers numbers fell too, dropping from 55.3 million in Q 1 to 54 million, a loss of about 2.35%.
But given that the average revenue gained from those remaining subscribers rose to $11.09 from $10.82, or 2.49%, the move to merge HBO Max and Discovery+ and rebrand them as Max, may not have been the fiasco many had predicted.
Why It Matters
Right now the goal with Max is to lose less money with each passing quarter, eventually getting somewhere close to breaking even, at which point someone will presumably buy them.
It’s not an easy task, and the WBD team has taken a lot of flak for their actions, but the reality is that AT&T really did a number on the company’s finances and the cure is going to be painful.
This, I might add, is still somewhat mind boggling in that AT&T’s management did not seem to have learned a single lesson from the massive mess Verizon had gotten into several years prior with its various attempts at media ownership.
But I digress.
Hard calls need to be made at Warner Brothers and of course people are going to be unhappy.
A not all that hard call that still managed to make people unhappy was the rebrand to Max.
The logic here makes sense. Well, to me anyway.
Follow me on this:
HBO has been around in something close to its current form for around 20 years. It is very popular with a certain type of viewer.
At the same time, there are millions of people who did not really like HBO or the shows on it and thus did not subscribe.
This split was early days Death of the Monoculture and there really are a whole group of people out there who never saw The Sopranos, Sex And The City, Curb Your Enthusiasm, Entourage or Silicon Valley.
Shows the people who did see them frequently describe using the word “iconic.”
So if you’re WBD, you need to attract all those people who did not see a reason to subscribe to HBO but might subscribe to see more mainstream fare as well as Discovery programming, which has grown to include all the food and home and garden shows from Scripps.
The assumption seemed to have been that HBO was still in a good place. That with shows like Succession, The White Lotus, Hacks and The Last Of Us, the core audience wasn’t going anywhere and would not be all that chuffed that the service was called Max. Especially if the letters “HBO” appeared frequently enough on the app.
Similarly, the assumption was that removing “HBO” from the name might signal to all those HBO Haters that this was something different and that subscribing didn’t mean they thought they were “better than everyone else” or whatever other stereotypes the letters “HBO” conjured up.
It’s still too soon to say how it all panned out—the subscriber loss for Q2 is pretty low—just 2.35% of the total, and some/much of that was likely due to attrition—people combining their Discovery+ and HBO Max subscriptions into one.
The real test though will be to see how things shake out a year from now and if Max can manage to grow those numbers and attract people from outside the blue state coastal elite.
In the interim though, the rest of the company seems about ready to be released from intensive care, though Wall Street is monitoring its condition closely.
In other words, we’ll have to wait and see.
What You Need To Do About It
If you’re WBD, you need to continue your outreach to the HBO Haters and find ways to bring them into the fold that justify them paying $10 or $15/month for the service.
CEO David Zaslav just told investors that the plan is to introduce live news and sports to Max, and that is most definitely going to make it easier to convince those non-HBO viewers that the service is well worth the money. (The question is what the time frame is on that and what said live news and sports actually look like.)
But it’s a solid thought.
One other thought: linear channels.
You have a fairly sizable library and linear channels have proven to be very popular on the FASTs. Set them up on Max and promote them to people who just want to have the TV on as background noise or as a distraction.
It will set you apart from the other SVOD services. At least at first. I suspect your competitors will all jump on the linear channel bandwagon too. More than that though, it will help justify that hefty subscription fee.
Think about it.
