With HBO and CBS Cutting the Cord, Which Networks Will Follow Suit?

HBO Dynamite
Kotryna Zukauskaite for Variety

With two swift strokes, HBO and CBS have opened new doors to a future where you won’t have to pay for a huge bundle of channels to get their TV shows.

Now the questions are which networks will follow suit — and how seriously the movement will threaten the highly profitable $80 billion pay-TV sector.

In an announcement that caught distributors unawares, HBO said it plans to roll out an over-the-top service domestically in 2015 that won’t require a pay-TV subscription — a precondition to receiving the network over its 42-year history. “This will be transformative for our company,” HBO CEO Richard Plepler said at Time Warner’s investor day confab last week. “It is time to remove all barriers to those who want HBO.”

While CBS is already available over the air for free, the broadcaster took the added step of launching All Access, a $5.99 monthly package stocked with 6,500-plus episodes from 15 current primetime series, previous seasons and older shows on-demand, plus live-streaming access to 14 of the Eye’s local stations. “We feel confident there’s a meaningful audience for it,” CBS Interactive president Jim Lanzone said.

If a growing number of nets create a la carte services and cut out the pay-TV middlemen, it’s bound to shrink the number of people willing to pay for a full package of channels. HBO’s stand-alone OTT service, aimed at the estimated 10 million broadband-only homes in the U.S., could have “broader implications for the (pay-TV) ecosystem, and impact Turner” by making traditional channel bundles less attractive, according to RBC Capital Markets analyst David Bank.

Plepler, while pegging HBO’s over-the-top opportunity in the hundreds of millions of dollars, downplayed the potential of the stand-alone service to cannibalize the existing business. He emphasized that HBO aims to market the product only to the cord-never crowd, and to work with cable and telco partners on the plan: “They’re going to make money,” he said.

Who’s next? Showtime, HBO’s longtime rival, is obviously a prime OTT candidate. CBS boss Leslie Moonves, at an investment conference last month, said there’s a “very strong possibility” Showtime could become available as a stand-alone broadband service. Following HBO’s announcement, Showtime would say only that it has been examining OTT “for some time,” and that the subscription model is “ideally positioned to take advantage of developing technologies in the consumer marketplace.”

Programmers already have been strategically shifting from cable TV to the Web. ESPN’s new nine-year deal with the NBA carves out rights for a future OTT streaming service with a selection of live games (no cable TV required). HBO launched a Netflix-like rival in the Nordics, and Starz is mulling an international SVOD service for Asia, Latin America and other territories.

Then, there’s Hulu — one of the original OTT players, owned by Disney, Comcast’s NBCUniversal and 21st Century Fox, which has more than 6 million subs for its $8-per-month Internet video service, featuring more than 100,000 TV episodes and 5,400 movies. But in that instance, content companies banded together to form a new brand rather than stand on their own.

Others could join the fray. Viacom should move sooner rather than later to launch its own OTT service, according to Guggenheim Partners analyst Michael Morris.

In his analysis, the entertainment company — suffering above-average ratings declines for its younger-skewing linear networks like MTV, Comedy Central and Nickelodeon — could introduce an ad-free SVOD package for $7.99 and an ad-supported one at $4.99 with episodes from its 25 cable networks and Paramount’s 3,400-film library, without damaging its core TV revenue stream.

“People (in the industry) think this is a dumb idea,” Morris said, because it would likely anger distributors and probably further depress linear network ratings. “But Viacom’s audience is eroding and they’re not benefitting from the bundle.”

Asked for comment, a Viacom rep said, “As our recent deals with Sony and Verizon (for virtual pay-TV services) attest, we’re aggressive in partnering with innovative distributors creating new pathways to audiences, and we’ll continue to create more opportunities as we pursue this strategy.” However, according to sources familiar with the media conglom’s strategy, it is not currently contemplating a direct-to-consumer OTT service in any real way.

It’s possible that content owners’ OTT services will remain on the fringes, mainly as a hedge against nascent cord-cutting. Today, Internet-video options aren’t a replacement for full-blown pay television, particularly when it comes to sports. For example, CBS’ SVOD package excludes all live NFL games. And notwithstanding ESPN’s OTT plans with the NBA, the sports TV giant has no desire to divorce its channels from subscription-based packages.

“I have a hard time believing we are going to see a mass unbundling of TV networks in the very near future,” Parks Associates analyst Glenn Hower said. “It’s possible we’re making moves toward that, but at the end of the day, networks still get a lot of money from the pay-TV system.”

For programmers, though, the danger is that without an OTT play they’ll be left behind as more people — particularly younger folk — opt out of pay TV.

“Strategically, the content owners will need to be there,” said Chris Vollmer, global managing director of digital for PwC’s Strategy& consulting arm. Otherwise, they “risk losing relationships and preference with a new generation of video consumers that are undeniably more digital-first.”

Brian Steinberg contributed to this report.

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  1. cdavis says:

    Wont miss CNN or HLN all they do is coverup Obama Blunders or fail to provide fair politicsl views like FOX….will miss TCM and truTV….Oh Well!

  2. nerdrage says:

    This could work out okay if HBO Go or whatever it’s called is as easy to get in and out of as Netflix. Sure, it’s absurd to run all over the place and subscribe to a bunch of different services but assuming their library is robust, it would be worth it to subscribe sequentially. Drop Netflix for a couple months, pick up HBO Go, jam thru all of The Sopranos, Six Feet Under and Masters of Sex (okay, maybe three months), drop HBO Go, pick Netflix back up, repeat as needed…

  3. Jacques Strappe says:

    I don’t watch CBS programming now so there is no way I would pay anything to have online access to their current programs and library of older programs. ABC, NBC and FOX have Hulu so I can’t imagine they are in too much of a hurry to start their own subscription service but I suppose it is inevitable they all will eventually. And yes, I too, would pay a modest monthly subscription fee to access TCM. Monopoly provider Comcast controls both the cable and broadband service for so many Americans already, as more of their customers cut the cable cord, Comcast will continue to raise broadband rates to make up for the decline in the cable television customers.

    • nerdrage says:

      Good point. I have the good fortune to live in the SF Bay Area, where there is still actual competition for ISPs, but most folks will find to their dismay that it’s not actually worth it to cut the cable cord and keep internet thru Comcast.

  4. Eggman says:

    Do not underestimate the direct-to-consumer move, even from incumbents with well established pay-TV revenue arrangements in place. ESPN is already doing stand-alone (can you say ESPN 360?) and every major studio in Hollywood has been considering the option for at least the last 3-4 years. The questions are when to pull the trigger and in what form?

    And simply because every studio (or studio franchise) goes direct-to-consumer doesn’t mean the role of an aggregator is lessened. If there are indeed 300 parking lots, you need a Cars.com to scan them all and find the car you want (ergo, a fluid, multi-source interface that combines all of the standalone offerings into a single user-friendly ‘user guide’). That’s not the same as a monopoly incumbent that negotiates retrains fees in the classic sense, but it serves the same purpose to the end-user: to organize the content into an easily searchable format. And if I only subscribe to the 17 channels Nielsen says I use on a regular basis, that’s much more tenable than a 300 lot option, even if the channels are not integrated into a single UI.

    • nerdrage says:

      Here’s the winning app for the aggregator: to aggregate the subscriptions. It’s silly, burdensome and pricey to subscribe to CBS, HBO, Netflix, Amazon et al. Give your credit card number to the aggregator, tell them “go fetch me HBO for the next three months, then drop it and fetch me Amazon for two months.” The aggregator could help you figure out the length of time you want to subscribe by matching the library to your interests and viewing habits to estimate how long it will take you to binge-watch the entire run of The Sopranos.

      • Eggman says:

        Direct-to-consumer models open a Pandora’s box, so why stop there at subscribing to specific networks/channels? Why not use this same aggregator to coordinate subscriptions to specific shows? Yes, this would be incredibly disruptive to the TV industry, but that may be where all of this is headed in the long run. They argument that ‘I only want to pay for what I watch’ permits increasingly granular slicing of content. The logic is not confined to bundles of channels but can be applied equally well to the concept of channels themselves.

  5. I am so ready to try something new. I hate having to buy all these channels because of a BUNDLE package. The industry’s changing and I’m so ready to see what it comes up with that might be better for my individual needs. A la carte TV would be awesome for what I need. And I agree with George: I’d be up for paying $5 per month for TCM. A great example: I have no other reason on the planet to have a subscription to NetFlix except that I HAD to watch House of Cards because everyone was talking about it! I’m less likely to pay for the TV package for TCM that comes with it because I don’t need all those other channels and it’s so expensive on top of my basic. I’m unsure why some sort of combination of ala carte hasn’t been an option all along. Buy a bundle if you want because it saves you money — but then, add in additional channels as you go and as you want/need. To me, it seems like a no brainer and great profit possibilities — DVR’s should have always been a part of Television. And ala carte should have always been an option too. It’s just logical. And now, online streaming seems the way to force this change to happen. I’m so looking forward to it! Thanks HBO & CBS!

  6. George Matusek says:

    I would be willing to pay $5 per month to get stand-alone streaming of TCM (Turner Classic Movies).

  7. TheBigBangOf20thCenturyPopCulture says:

    Social media addict millennials too busy with texting and pet clips lack the attention span for Internet pay cable a la carte programming. Standard media needs to stay offline and just leave the web alone. Rather than cater to kids preoccupied with gadgets, they need to bring back civilized non dystopian TV for family show oriented baby boomers. Toxic content may sell to kids, but mature adults know better.

    • chris says:

      The current system is like having 300 different cars crammed into a single parking lot with engines on all day long just in case you want to take one out for a 52 minute spin. You’re going to pick a car that gets your attention and that’s easy to find.

      Do we really want 300 different parking lots?

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