Max needs higher prices, more ads to help support WBD’s flailing businesses

[Karlston]

WBD chief hopeful that Trump administration could enable more streaming M&As.

Joker: Folie À Deux is expected to hurt WBD's profits next quarter. Credit: Warner Bros. Picture/YouTube

 

Subscribing to the Max streaming service is expected to become more costly in 2025. That could mean indirectly, like through another streaming password crackdown, or directly, like through increases to monthly and/or annual subscription prices.

Password crackdowns as a “form of price rises”

During the earnings call for parent company Warner Bros. Discovery (WBD) for its fiscal Q3 2024, which ended on September 30, WBD signaled that it's gearing up to roll out its next strategy for growing streaming revenue—charging subscribers extra for sharing passwords—over the next few months. This will start with "very soft messaging" toward Max users before the crackdown intensifies in 2025 and 2026, WBD CFO Gunnar Wiedenfels said.

 

Wiedenfels admitted that on their own, password crackdowns are “a form of price rises.” Netflix kicked off this form of price hike in the US in May 2023, and other streaming services have followed. That means Max is behind some rivals when it comes to implementing this restriction. Further, Max has been discussing its password crackdown since March, so subscribers could take some comfort in not seeing the restrictions launch sooner.

Higher subscription prices, more ads expected

WBD also hinted at potential price hikes for Max today. During the earnings call, JB Perrette, WBD's CEO and president of global streaming and games, noted that although Max has raised US subscription prices twice in the past two years, WBD believes it can get away with even higher prices: "We think the premium nature of our product in particular lends us to be - to have a fair amount of room to continue to push price."

 

WBD is emboldened to push subscription prices even higher since, per Perrette, previous US price hikes have resulted in Max losing fewer subscribers than projected.

 

Max is already available with ads, but WBD executives argue that subscribers still aren't seeing that many advertisements. The company currently views its streaming ad business as small scale. Perrette noted that although Max shows ads before content, it doesn't show ads in the middle of current HBO series and described the current Max ad load as "light," especially when compared to rivals.

 

So, like other consumer companies steadfast on profitability these days, Max is willing to test how many ads users will endure. In the mean time, streamers are likely to be getting more acclimated with streaming ads or to have already decided to pay extra for an ad-free subscription. WBD is banking on it that few users will choose door No. 3 or quit Max altogether.

As streaming grows, other WBD businesses decline

Subscribers may have hoped for relief from inflating prices and ads once some streamers reached profitability. For its part, WBD's direct-to-consumer (DTC) business, which includes the Max and Discovery+ streaming services and HBO, reported $289 million in profit in WBD's Q3 2024 [PDF]. We don't know how much money exactly is tied to HBO, but if there is any it's dwindling, intensifying pressure for WBD to build its streaming business.

 

WBD's DTC business saw advertising revenue and its average revenue per user grow year over year (YoY) in its Q3 2024. The business also gained more subscribers than it ever has in a quarter (7.2 million) for a total of 110.5 million subscribers. These are successes but also underscore a need for WBD to capitalize on its unprecedented streaming momentum.

 

At the same time, the rest of WBD is in a period of duress as the cable and movie industries struggle. Films like Beetlejuice Beetlejuice failed to reach the same success as last year's Barbie, sending WBD studios' revenue down 17 percent and its theatrical revenue down 40 percent. As WBD CEO David Zaslav put it:

 

Inconsistency also remains an issue at our Motion Picture Studio, as reinforced recently by the disappointing results of Joker 2.

Some things that helped buoy WBD's legacy businesses won't be around the next time WBD execs speak to investors. This includes revenue from distributing the Olympics in Europe and gains from the Hollywood writers' and actors' strikes ending. With WBD's networks business also understandably down, WBD's overall revenue decreased 3 percent YoY. It's natural for the company to lean more on its strongest leg (streaming) to help support the others.

WBD wants more streaming M&As

Today, Zaslav reiterated earlier stated beliefs that the burgeoning streaming industry needs more mergers and acquisitions activity to maintain profitability. He discussed complications for users, who have to consider various services' pricing and are "Googling where a show is, or where a sport is, and you're going from one to another, and there's so many." He added:

 

It's not sustainable. And there probably should have been more meaningful consolidation... You're starting to see fairly large players saying, 'Hey, maybe I should be a part of you. Or maybe I should be a part of somebody else.'

Zaslav said that it's too early to know if Donald Trump's presidency will boost these interests. But he suggested that the incoming administration “may offer a pace of change and an opportunity for consolidation that may be quite different [and] that would provide a real positive and accelerated impact on this industry that's needed.”

 

It's also too early to know if streaming consolidation would help subscribers fed up with rising prices and growing ad loads. But for now, that's about all we can bet on from streaming services like Max.

 

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