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Cord Cutter's Diary

An experiment in living without a cable TV subscription, by @zseward

Posts tagged HBO Go

Aug 30 '12
Aug 1 '12
"But the whole idea that there’s a lot of people out there that want to drop multichannel TV, and just have a Netflix or an HBO — that’s not right. Look for the data, you won’t find them."
Time Warner CEO Jeff Bewkes on a conference call today
Jun 6 '12

Why HBO doesn’t want my money

Take My Money, HBO!" is the clever name of a new Twitter campaign lobbying for standalone subscription access to the premium cable channel over the Web. As someone who would, indeed, like HBO to take my money, I figured it would be worth thinking through the viability of this proposal…

Time Warner derives about a fifth of its value from HBO, so even small changes to the business impact shareholders, who naturally expect the company to maximize its revenue from such a lucrative property.

There are some 100 million households in the U.S. with cable TV subscriptions, roughly 30 million of which pay for HBO. The cost varies widely across cable companies and their various package deals, but Time Warner ends up pocketing $7.27 per subscriber per month.

HBO is expensive, and its subscribers aren’t rich, so about a third of them drop the service each year. They are replaced by an equal number of new subscribers, keeping HBO’s domestic customer base “stable,” though revenue has continued to rise modestly as Time Warner hikes the cost of an HBO subscription. (Outside the U.S., however, it’s a different story: both subscriptions and revenue are growing as shows like Game of Thrones and Boardwalk Empire appeal to global audiences.)

In an effort to address the significant churn in its U.S. audience, HBO has been aggressively promoting HBO Go, which offers streaming access to all of its shows on a range of phones, tablets, and consoles like the Xbox. HBO Go evens includes old seasons of classics like The Wire and Six Feet Under, and if that generosity is cutting into DVD sales, Time Warner isn’t concerned because its subscription revenue is far more significant.

HBO Go users, it turns out, watch a lot more HBO, and that’s the point, according to the network’s co-president, Eric Kessler: “It’s like anything else in life. If you use it a lot, you’re likely to keep it.”

Of course, it has escaped no one that HBO Go also represents a potentially disruptive, over-the-top platform for Time Warner to distribute its highly coveted programming without the help of cable companies, some of whom have been reluctant to embrace it. And that’s where we rejoin the “Take My Money, HBO!” campaign and similar arguments made recently by The Oatmeal and MG Siegler, among others. They say to Time Warner, hey, buddy, you’ve got what I want: Game of Thrones, the surprisingly hilarious Veep — hell, even Girls is growing on me. But I refuse to (or would rather not) pay my cable company $100 a month simply for the right to pay you an additional $15 a month. So how about we cut out of the middle man? Shit, I’ll even pay you a premium for the privilege. Say, $20 a month?

Time Warner does not want to take that deal. Here is Kessler’s take on the advantages of distributing HBO over cable:

We benefit tremendously from the existing ecosystem. […] There are 60, 70, 80,000 customer service agents on the phone every day, and you know what they’re talking about? They’re talking about HBO. The affiliate covers that cost. The billing systems. That’s the affiliates. If you watch HBO 5 minutes a month or 24 hours a day, 7 days a week, that’s not a cost we have. In addition, we benefit tremendously from the fact that the cable operator bundles HBO into existing packages. So if they offer double-play or triple-play, you know, they say, get HBO free for three months. The ability to market and bundle with the affiliates is very beneficial to us. So it’s very beneficial to us to keep that transactional machinery going.

In that sense, transitioning people from the current cable + HBO structure to a direct-to-HBO relationship could actually reduce Time Warner’s profit per customer. The company would have to add significant rolls of new subscribers, people like me who aren’t currently paying for a cable TV subscription but have broadband internet access and a willingness to spend significant money on quality programming. HBO estimates that there are 3 million such households in the U.S., or a fraction of the 100 million households with cable. The potential for HBO to thrive among cord cutters isn’t nearly big enough. Not even at $20 a month.

But! “Let’s assume that in 10 years’ time there has been a significant shift away from multichannel subscriptions,” Bill Nelson, chief executive of HBO, told The Economist. “In that environment, HBO may reconsider its position.”

Even then, HBO would be risking a revolt among the cable companies, which could instantly cut off nearly all of the network’s revenue. It wouldn’t be a crowd-pleaser, but these fights are pretty standard in the industry.

All of which is to say that if HBO were to start taking the money of folks like me and people tweeting #takemymoneyhbo, it would suddenly find itself without enough cash to finance the production of its wildly expensive shows. We just aren’t a big enough group, to replace HBO’s existing, stable subscriber base, which would itself be imperiled.

Still, I don’t think it will take the 10 years envisioned by Nelson for HBO to offer standalone subscriptions. Even if cord cutting doesn’t accelerate, consumers will continue to buy smart TVs and set-top boxes in large numbers, introducing the notion of apps like HBO Go to millions of households and laying the infrastructure for Time Warner’s ultimate, over-the-top play. That market of 3 million U.S. households will grow to include not just new cord cutters but also households that are ready to cut the cord, if only services like HBO (and MLB.tv and, perhaps, Hulu) would offer them something worthwhile. At that point, HBO may finally be able to take my money, and it will be a lot of money, indeed.