This is a textbook case of innovator's dilemma, I think.
"... and there’s no way that HBO could make up in online volume the number of subscribers it would lose from cable"
This assumes two things:
1. That all cable companies immediately will cut HBO from their lineups as soon as it offers web only deals. This is insane! What else will keep up the $100+ cable offerings? They have nothing else other than sports.
2. Where does this "no way" argument come from. HBO's cut from each cable subscriber is, I think ~$10. If it offers, say, a $40 all you can eat online option, how much of that revenue will go down to infrastructure, etc?
With Netflix and Amazon rising on one side and more and more of the younger demographic watching web-streamed shows, HBO will change, the questions is: will it take five years or two?
My guess is that the timing is entirely contingent on their existing contracts.
My guess is that HBO's contracts with cable providers have terms that are simply incompatible with a direct-to-consumer offering. If they were renegotiated at any point in the last five or so years, I would think it likely that such clauses exist. Perhaps not with every provider, but with enough to make things problematic prior to the next round of re-negotiations.
e.g.
Suppose something in the contract indicates that Comcast only kicks back to HBO a fraction of the cheapest available consumer-facing price. (Protecting Comcast from HBO's turning around and cutting a sweetheart deal with another cable operator the next day)
In which case HBO's $10 cut of the $17ish that Comcast charges [1] would itself erode should HBO make a hypothetical $12/mo offering available.
So even if HBO's cable subscriber numbers held steady, they may well be facing a huge drop in revenue simply by making an economically-feasible direct-to-consumer offering. [2]
Or, it could be a more direct clause simply prevents any direct-to-consumer offering.
But that situation sounds the most likely to me. It would have been in the cable operators interests to ask for such clauses and in HBO's interests to concede. [3]
[1] Numbers based solely on prior articles I've read. I haven't had cable, let alone HBO, in quite some time.
[2] I think we can all agree that even HBO would be dead-in-the-water among cord-cutters at anything north of $15/mo. And anything between 10 and 15 gets debatable.
[3] Even three years ago streaming was not 'ready' to the point of justifying a fight with cable operators. Even now it's anything but a sure thing. Particularly when there hasn't been a real break-out leader in the IP-set-top-box space. They'd need to sign and support a half-dozen deals and platforms to give this thing an honest shot at the moment. Going slow with HBO Go is a very shrewd way to ease into the platform fight before a crush of public interest descends on a hypothetical consumer-direct offering.
What web-streamed shows come even close to the quality of HBO produced shows? I'm not trying to be argumentative, I'm curious. Yahoo produces a lot of their own 'shows' but it all seems amateurishly directed that I can't bother to watch a second of it.
Edit: I think funnyordie videos are actually really well produced.
#1 Netflix, Amazon, Hulu, or (gasp) Google start outspending HBO on serial shows. The next show of the caliber of "Game of Thrones" or "Sopranos" is not offered through HBO.
#2 Consumers fail to see why they should be paying for HBO, or even want it. You could say a #1 3-4 times, combined with a failure to produce a notable show for a while, would kill HBO's desirability as a brand.
What HBO's management is doing is managing for death. This is what you do when you have a company with a passing business model to keep it as profitable as possible for as long as possible. In some ways you could imagine HBO as a porn company 8 years ago that primarily produced DVDs. Their business is still profitable and glamorous, they are mostly ignoring the pirates, but their real enemy is right around the corner.
HBO still has the possibility of transitioning. People care about HBO, thus all these stories about it. What they've done is tell their competitors "come get us." (alternatively HBO could just be calling their bluff and has full plans ready to switch to a web/mobile version)
HBO is already facing down that risk from FX and AMC, two rival channels owned by different companies offering comparably high-quality shows on basic cable.
My point isn't that this moots HBO's sensitivity to (say) Netflix doing the next Game of Thrones, but rather that it's unlikely HBO is going to move to preempt that. HBO does not appear to have reacted to Mad Men, Breaking Bad, Justified, or Sons of Anarchy as existential threats to their business.
If Netflix is the threat that is going to motivate HBO to go direct to consumer, they're going to have to put their money and their execution where their mouth is first. I have my doubts that they're equipped to pull that off, because I think they have an adverse selection problem: for prestige reasons, the best content is going to hit HBO, then Showtime, then AMC, and so on down the line.
I think they're failing to appreciate the forces of habit and culture. The longer they wait to offer a legitimate option, the more people will already be habituated to piracy and embedded in communities that exist for piracy.
Or to put it another way, they're doing an excellent job of helping sell the idea of piracy to people who probably otherwise wouldn't bother. Once those people get used to it, it will be that much harder to sell them a pay service.
And thousands now feel completely justified in pirating their shows. I can't help but think that HBO is losing out here by not listening to their customers.
As long as HBO is owned by Time Warner, and the money left on the table from not offering an online option is less than the amount they're making from their own cable offerings, they won't change.
Time Warner Cable is not owned by Time Warner. They are an entirely independent company that continues to license the name. I just found this out recently, so thought I'd share.
Follow? its more like standing in the same place and not moving. And still getting rich. And once they decide to move forward they will a) fail at it b) throw fits because they realize that they are at the end of the rope at that point.
The issue is, to get the few hundred you would offer, they would have to give up the millions that the cable companies offer. The last time I looked, if every single person who pirated HBO shows were to pay per episode (wouldn't happen, many would still pirate) it still wouldn't be as much as what they get from cable now.
This is the future of this market. If they're not willing to move there, someone else will and eat their lunch. I like HBO, and they still have plenty of time to make the move, but if they fail to do so I won't mourn them.
How? Its not as simple as building a website, we're talking about spending millions of dollars to create quality content that people actually want to watch.
Netflix is going to try, and they succeed then I'm sure that HBO will think a bit harder about it, but right now there isn't much to be gained from them being the one to take the leap.
Am I misreading Mr. Lawler's statements, or is the pay-TV industry colluding to prevent HBO from selling to other markets? I feel like an antitrust investigation is in order. (Overdue, in fact.)
It's not collusion. Its a carriage deal. HBO wants distribution on the cable operators lines. The Cable Operators want HBO. So they do a contract which precludes streaming via the internet. These contracts are standard across the industry and in fact standard across almost all industries with products and distribution (see liquor distributors).
HBO is free to distribute via the internet if they so choose and the cable operators are free to stop distributing their content.
Essentially, HBO will eventually fall and start offering content available for streaming. It's just a question of when. This is where the market is headed and even cable companies are getting into the streaming game.
In the meantime, I'd settle for an HBO Go app that wasn't junk.
Who needs HBO? Let's create incentives for the writers/directors to disseminate their work via alternative channels. Why the hell should HBO have a strangle-hold on that market?
Hulu has some great originals such as Spy and Battleground. Reward them!
This is HBO's loss. They could be making money by partnering with the likes of Roku, Microsoft and Sony. Instead they are going to let dinasaurs like Comcast and TWC drag them down. I tried writing to HBO a while ago. They did not bother responding. I cannot help but feel quiet satisfaction knowing that they are losing so much money.
Hey, who can blame HBO, they like their business model. It works, it's made them millions.
Except if they don't get ahead of the curve they'll find that most people have gone down the routes of waiting for it to get to NetFlix, pirating it, or not giving a damn at all. Bye bye millions.
HBO is the only reason I've ever signed up for cable. This is probably partly contractual and partly demographic. In a few more years it will probably start to make financial sense for HBO to offer its shows w/o requiring a cable subscription.
I recently downgraded my Comcast service because our monthly bill had reached ridiculous heights, and in the process had to let HBO go. Losing HBO was the hardest pill to swallow, but I'll now just wait for the DVDs or streams to hit Netflix.
[+] [-] Jun8|13 years ago|reply
"... and there’s no way that HBO could make up in online volume the number of subscribers it would lose from cable"
This assumes two things:
1. That all cable companies immediately will cut HBO from their lineups as soon as it offers web only deals. This is insane! What else will keep up the $100+ cable offerings? They have nothing else other than sports.
2. Where does this "no way" argument come from. HBO's cut from each cable subscriber is, I think ~$10. If it offers, say, a $40 all you can eat online option, how much of that revenue will go down to infrastructure, etc?
With Netflix and Amazon rising on one side and more and more of the younger demographic watching web-streamed shows, HBO will change, the questions is: will it take five years or two?
[+] [-] roc|13 years ago|reply
My guess is that HBO's contracts with cable providers have terms that are simply incompatible with a direct-to-consumer offering. If they were renegotiated at any point in the last five or so years, I would think it likely that such clauses exist. Perhaps not with every provider, but with enough to make things problematic prior to the next round of re-negotiations.
e.g. Suppose something in the contract indicates that Comcast only kicks back to HBO a fraction of the cheapest available consumer-facing price. (Protecting Comcast from HBO's turning around and cutting a sweetheart deal with another cable operator the next day)
In which case HBO's $10 cut of the $17ish that Comcast charges [1] would itself erode should HBO make a hypothetical $12/mo offering available.
So even if HBO's cable subscriber numbers held steady, they may well be facing a huge drop in revenue simply by making an economically-feasible direct-to-consumer offering. [2]
Or, it could be a more direct clause simply prevents any direct-to-consumer offering.
But that situation sounds the most likely to me. It would have been in the cable operators interests to ask for such clauses and in HBO's interests to concede. [3]
[1] Numbers based solely on prior articles I've read. I haven't had cable, let alone HBO, in quite some time.
[2] I think we can all agree that even HBO would be dead-in-the-water among cord-cutters at anything north of $15/mo. And anything between 10 and 15 gets debatable.
[3] Even three years ago streaming was not 'ready' to the point of justifying a fight with cable operators. Even now it's anything but a sure thing. Particularly when there hasn't been a real break-out leader in the IP-set-top-box space. They'd need to sign and support a half-dozen deals and platforms to give this thing an honest shot at the moment. Going slow with HBO Go is a very shrewd way to ease into the platform fight before a crush of public interest descends on a hypothetical consumer-direct offering.
[+] [-] jaems33|13 years ago|reply
Edit: I think funnyordie videos are actually really well produced.
[+] [-] AJ007|13 years ago|reply
#1 Netflix, Amazon, Hulu, or (gasp) Google start outspending HBO on serial shows. The next show of the caliber of "Game of Thrones" or "Sopranos" is not offered through HBO.
#2 Consumers fail to see why they should be paying for HBO, or even want it. You could say a #1 3-4 times, combined with a failure to produce a notable show for a while, would kill HBO's desirability as a brand.
What HBO's management is doing is managing for death. This is what you do when you have a company with a passing business model to keep it as profitable as possible for as long as possible. In some ways you could imagine HBO as a porn company 8 years ago that primarily produced DVDs. Their business is still profitable and glamorous, they are mostly ignoring the pirates, but their real enemy is right around the corner.
HBO still has the possibility of transitioning. People care about HBO, thus all these stories about it. What they've done is tell their competitors "come get us." (alternatively HBO could just be calling their bluff and has full plans ready to switch to a web/mobile version)
[+] [-] tptacek|13 years ago|reply
My point isn't that this moots HBO's sensitivity to (say) Netflix doing the next Game of Thrones, but rather that it's unlikely HBO is going to move to preempt that. HBO does not appear to have reacted to Mad Men, Breaking Bad, Justified, or Sons of Anarchy as existential threats to their business.
If Netflix is the threat that is going to motivate HBO to go direct to consumer, they're going to have to put their money and their execution where their mouth is first. I have my doubts that they're equipped to pull that off, because I think they have an adverse selection problem: for prestige reasons, the best content is going to hit HBO, then Showtime, then AMC, and so on down the line.
[+] [-] ender7|13 years ago|reply
[+] [-] crb|13 years ago|reply
[+] [-] trimbo|13 years ago|reply
[+] [-] technoslut|13 years ago|reply
The illusion that quality will reign supreme is just that. Since the 90s crap TV shows have got the ratings.
[+] [-] ef4|13 years ago|reply
Or to put it another way, they're doing an excellent job of helping sell the idea of piracy to people who probably otherwise wouldn't bother. Once those people get used to it, it will be that much harder to sell them a pay service.
[+] [-] AUmrysh|13 years ago|reply
[+] [-] pavel_lishin|13 years ago|reply
(Full disclosure, I download content, so my horse is not particularly high, and I'm not even on it right now.)
[+] [-] phene|13 years ago|reply
[+] [-] jonny_eh|13 years ago|reply
[+] [-] lytol|13 years ago|reply
[+] [-] damoncali|13 years ago|reply
[+] [-] seanp2k2|13 years ago|reply
Why lead when you can follow and still stay rich?
[+] [-] firichapo|13 years ago|reply
[+] [-] sliverstorm|13 years ago|reply
I think that's a little unfair. HBO is clearly leading in terms of show quality.
[+] [-] mtgx|13 years ago|reply
[+] [-] bgentry|13 years ago|reply
[+] [-] flyinRyan|13 years ago|reply
[+] [-] chawco|13 years ago|reply
[+] [-] gtCameron|13 years ago|reply
Netflix is going to try, and they succeed then I'm sure that HBO will think a bit harder about it, but right now there isn't much to be gained from them being the one to take the leap.
[+] [-] tomjen3|13 years ago|reply
[+] [-] lukeschlather|13 years ago|reply
[+] [-] mikeryan|13 years ago|reply
HBO is free to distribute via the internet if they so choose and the cable operators are free to stop distributing their content.
[+] [-] pwthornton|13 years ago|reply
Essentially, HBO will eventually fall and start offering content available for streaming. It's just a question of when. This is where the market is headed and even cable companies are getting into the streaming game.
In the meantime, I'd settle for an HBO Go app that wasn't junk.
[+] [-] brockhand|13 years ago|reply
[+] [-] tlowrimore|13 years ago|reply
[+] [-] IgorPartola|13 years ago|reply
This is HBO's loss. They could be making money by partnering with the likes of Roku, Microsoft and Sony. Instead they are going to let dinasaurs like Comcast and TWC drag them down. I tried writing to HBO a while ago. They did not bother responding. I cannot help but feel quiet satisfaction knowing that they are losing so much money.
[+] [-] nicholassmith|13 years ago|reply
Except if they don't get ahead of the curve they'll find that most people have gone down the routes of waiting for it to get to NetFlix, pirating it, or not giving a damn at all. Bye bye millions.
[+] [-] grandalf|13 years ago|reply
[+] [-] wtdominey|13 years ago|reply
[+] [-] samolang|13 years ago|reply