A new season of “Game of Thrones,” a new round of groans. Because the HBO series had the distinction of being the most pirated show on TV last year, expect much blogosphere bellyaching on the sore subject of the premium channel’s digital platform, HBO Go.
If only it could be purchased without also having to pony up for a subscription, “Thrones” fans whine, so many wouldn’t have to resort to piracy.
But HBO has good reason not to untether HBO Go. Such a move would undoubtedly trigger a mass exodus from the subscriber base that provides the lion’s share of the $1.5 billion in profits the Time Warner unit pocketed last year. Such a split would also upset the pay TV distributors who fork over billions to lock up that programming exclusively, not to mention shoulder some or all of the marketing and subscriber acquisition costs.
And yet the whiners are correct: It’s time for a broadband-only offering from HBO in the U.S. Let’s call it HBO Go-It-Alone.
Reducing copyright infringement isn’t even the primary reason to make HBO Go available on a standalone basis. More to the point is that the demand for a broadband-only version of HBO is going to grow astronomically; the subscriber count for the linear channels will not.
(From the pages of the March 26 issue of Variety.)
Think back to last year’s “Take My Money, HBO” campaign, which induced thousands to declare via Twitter — unprompted by HBO — how much they would pay for a standalone broadband offering ($12 on average). If that’s what the prospect of such a product could elicit just midway through HBO Go’s three-year history, just imagine how that demand has risen as the app becomes ubiquitous across devices.
There’s got to be an untapped market segment among the 80 million broadband subs across the U.S. who aren’t going to pay for HBO as a $15 charge on top of a $70 basic cable tier, but will pay for HBO Go on top of a broadband subscription. HBO may already be learning about such consumer appetites in the Nordic countries, the only region where HBO Go is on its own, albeit in a very different market than the U.S.
The latter scenario invites a very real cannibalization threat to the former, but it’s not as if HBO Go-It-Alone would knock linear HBO off rocket-like growth trajectory. The channel’s sub count leveled off below 30 million years ago; the company has managed to maintain profitability by diversifying via everything from DVD sales to international expansion.
But that subscription plateau is precisely why HBO Go-It-Alone needs to happen. There is a way to manage the inevitable decline of linear HBO in such a way that it happens more slowly than the simultaneous growth of HBO Go-It-Alone. A broadband version can still command a decent price point without offering everything the existing HBO Go does, like curtailing access to previous seasons, restricting viewing to handheld devices, even delaying the premiere window for original series.
Time Warner might be surprised what limitations would be tolerated by consumers who are interested in HBO but will never cross the $85 barrier, and the differentiation from linear could diminish cannibalization.
This may all seem immaterial if pay TV distributors would disapprove. But don’t forget that some of the same distribution partners HBO can’t afford to piss off also have a vested interest in adding value to the broadband services that are becoming more important to their businesses. Helping cover the infrastructure costs of HBO Go-It-Alone may help make the economics work in a way they wouldn’t have worked if HBO was stuck with the bill.
The Comcasts of the world have to ask themselves whether HBO is of more value to them in the long term as a non-essential feather in the cap of its video business or as a gamechanging value-add to its triple-play offering.
Netflix is broadband’s biggest attraction, and that should worry Time Warner. But HBO Go-It-Alone would have the goods to compete against Netflix for subscription dollars on the strength of its vast original programming catalog.
That advantage, however, is going to last for only so long, given how aggressively Netflix is ramping up original efforts beyond House of Cards. As Netflix chief content officer Ted Sarandos recently summed up the competitive landscape, “The goal is to become HBO faster than HBO can become us.”
Whenever HBO execs are asked about the future of HBO Go, they qualify their strategy as their stance “today.” But they’d better move faster or the opportunity won’t look as good tomorrow.