HBO sub growth stalls amid cable biz losses

'Thrones,' HBO Go launch help offset turmoil in pay TV market

Exclusive: The cold shoulder that consumers gave to cable and satellite operators during the second quarter has put a bit of a freeze on HBO.

The pay cabler saw its subscriber level stay virtually on par with the previous quarter, according to newly released numbers from SNL Kagan. HBO’s subscriber base eased 17,000 to 28.3 million. Showtime’s numbers were up a slight 355,000 to 20.5 million, and Starz added 200,000 to nearly 19 million.

The flat figure for HBO is mostly a reflection of a rough quarter for cable operators, which not only see seasonal softness this time of year but have the added burden of a slumbering U.S. economy that discourages increasingly expensive video packages. The six top cable and satellite ops lost more than 400,000 subs for the quarter, according to various industry estimates.

Record highs for multichannel subs in the first three months of the year helped HBO halt a yearlong slide by adding 70,000 subs, its first increase after four consecutive quarters of losses. That decrease was partly attributable to a carriage dispute with DirecTV, which triggered the tumble by withdrawing promotional support for the network.

It’s conceivable HBO could have faced a steeper loss were it not a strong quarter for the cabler. Its highly anticipated fantasy drama “Game of Thrones” bowed in April to robust ratings, followed by a broadening of the deployment of digital offshoot HBO Go the following month.

Backed by a national marketing campaign, HBO Go in particular was viewed as a big value-add to retain and attract HBO subscribers. Time Warner topper Jeffrey Bewkes touted it as such on the conglom’s earnings call for the first quarter. “To those of you who’ve seen it, you know that it represents a quantum leap in the consumer value of subscribing to HBO,” Bewkes said.

The subscriber base of pay TV networks contributes the lion’s share of their revenues, in turn a key driver to their parent companies’ bottom lines. In 2010, HBO was responsible for one-quarter of Time Warner’s profits, according to Nomura Research, while Showtime and Starz contributed slightly more than that to their respective parent companies, CBS Corp. and Liberty Media.

But even though Showtime and Starz managed modest increases, their businesses aren’t nearly as robust as HBO’s. For one thing, their subscriptions are often used by operators as free incentives to retain basic-cable packages. And even when consumers pay for them, Showtime and Starz don’t keep as much of the revenue as HBO does from its split with distributors.

To wit, SNL Kagan found that HBO pocketed an average monthly affiliate revenue per sub of $7.27 while Starz got $2.11 and Showtime, $1.72.

HBO is projected to collect nearly $4 billion in revenues from subscrptions in 2011, according to Nomura, about three times as much as Starz or Showtime. In addition, Starz and Showtime don’t have a presence internationally, whereas HBO has more subscribers abroad than in the U.S., not to mention a robust program licensing business.