Aug 25, 2014

HBO GO: Still Not Netflix

Last week Barclays analyst Kannan Venkateshwar put together a report that attempted to show the various ways HBO GO could launch as a web service and impact Time Warner’s market cap without destroying the network’s extremely profitable relationship with the MVPDs.

Venkateshwar laid out two possible scenarios:

  • An $11/month option that forces digital-only subscribers to wait for a six-month window before being able to watch new shows. (This offers a $4/month discount from the $15/month the average MVPD charges for HBO.) He assumes that 20% of HBO’s current audience would cut the cord if this model was available.
  • A web-only version with no windows that sells for a premium price of $18/month and is aimed at people who don’t currently have HBO or pay TV.

He assumes that HBO could make $600 million revenue by launching both these options simultaneously.

It’s a premise that makes for good headlines, but I don’t see it working for a number of reasons.
  1. The Cost Factor: Netflix, for $9/month, has thousands more movies, hundreds more TV shows. In comparison, both proposed versions of HBO Go look pretty light, especially the “full” version at double Netflix price.
  2. The Homeland Factor: HBO and Showtime are usually bundled together. So HBO benefits every time someone decides they want to watch “Homeland.” That also means viewers aren’t all that aware of how much HBO costs on its own via their MVPD, and it makes the paying for both HBO and Showtime into a much more expensive proposition. While HBO is more popular than Showtime, I’m not sure how many viewers are willing to drop the latter for a marginally better experience on the former.
  3. The Hassle Factor: HBO would have to set up a billing system and track down millions of dollars every month. Similarly, viewers would have yet another bill to keep track of and pay every month. While this doesn’t sound like a deal breaker, it’s one more factor that would keep people from making the switch.
  4. The Cheapness Factor: It’s not the $15/month for HBO that’s got people concerned about their cable bills, it’s the other $150 worth of other charges. Given the ease-of-use HBO currently provides pay TV customers with both linear TV and HBO GO, it’s going to be a tough sell to get them to excise just HBO from their cable bills…. especially if the resulting service isn’t superior to what they have or (more importantly) any less money. Cutting the cord and keeping HBO is certainly an option, but I suspect that HBO fans also enjoy watching AMC, ESPN and other networks that require a pay TV subscription. What’s far more likely is that if HBO chose to go it alone, the MVPDs would roll out variations on the low-cost basic cable + HBO packages that Comcast, Verizon and others tested last year.
  5. The Watercooler Factor: I’m still trying to wrap my head around the audience for 6 month old HBO content at a savings of $4/month. People who’ll pay money to watch HBO want to watch their shows live— or at least close to live— so they won’t be left out of the water cooler buzz (real or digital) around shows like Game of Thrones. Waiting six months to join the conversation seems counterintuitive.
While it seems logical to the digerati that HBO Go should be unbundled, the realities of the marketplace make it highly unlikely, at least in the near future. Right now, the prospect of going direct to consumer is a good negotiating tactic for HBO to use with the MVPDs, but the audience for such a product seems rather limited.

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