The new services could accelerate the number of consumers cutting the cord, which has been a small but growing worry for pay-TV providers for the past several years. But the strategies signal that the HBO and CBS are playing offense as well as defense — aimed at extracting better terms from current distribution partners, with the threat that they can bypass the middlemen.
HBO on Wednesday divulged plans to launch a standalone OTT service in 2015, and CBS a day later unveiled a direct-to-consumer subscription VOD offering. Both programmers may truly believe, as they claimed, that there’s an untapped market of “cord-nevers”: the approximately 10 million U.S. broadband households that don’t subscribe to cable or satellite TV.
But with CBS’s All Access $5.99-per-month service (which excludes NFL coverage), the Eye is really attempting to establish a “pricing umbrella” that it will use in the coming years for both retransmission-consent negotiations and compensation negotiations with affiliates, according to RBC Capital Markets analyst David Bank.
“We think this initiative is less about building a business of selling standalone subscriptions for $6/sub, but rather driving the retrans fee to closer to $3/sub and justifying higher reverse compensation — and it just might work,” Bank wrote in a research note.
CBS All Access, by creating an out-of-home digital distribution package, could be sold to cable, satellite and telco TV providers for a fraction of the retail price but give the broadcaster the ability to “rebid” retrans deals for a higher rate, the analyst said. CBS has confirmed that it will make the All Access available through pay-TV providers.
Similarly, for HBO, the move may be just so much saber-rattling to let pay-TV partners know it has another outlet if the cabler doesn’t get the results it expects. (Tellingly, the HBO OTT shot across the bow was scant on details.)
HBO president Richard Plepler, at Time Warner’s Investor Day, said the premium cabler’s has an opportunity worth hundreds of millions of dollars with the standalone OTT foray. But, at the same time, he emphasized that HBO is nearing renegotiations with key pay-TV providers and that it expects to get better deals — and to convert about 4 million non-revenue-generating subs into paying customers.
In the same vein, Time Warner topper Jeff Bewkes said at last month’s Goldman Sachs confab, even as he hinted that HBO could become available as a standalone option, issued a warning to existing pay-TV partners: “If you’re an underperforming (HBO) affiliate, you need to do better.”
In short, the traditional pay-TV bundle is not in danger of extinction, at least not immediately. As MSOs repeatedly have pointed out, they’ve introduced stripped-down, lower-priced cable bundles — but those have not been very popular, as most people still want a wide assortment of channels, integrated into a single service for a single price.
The HBO standalone service “will be attractive to some people who are really into ‘Game of Thrones’ or ‘Girls,’ but there’s still a pretty sizable number of people who want more than just HBO content,” Parks Associates analyst Glenn Hower said.
On the other hand, if the OTT services from HBO, CBS and potentially others do gain traction, they will spur sales of Internet-video streaming devices like Apple TV, Roku, Amazon Fire TV, Google’s Chromecast and recently launched Nexus Player, according to Joel Espelien, senior analyst at The Diffusion Group.
“You have to watch HBO on something,” he said. “That’s going to move more units of Apple TV, Roku and Xbox One.”
So far, Netflix has basically sustained the entire ecosystem of Internet-connected TV devices, with other services like Amazon’s Prime Instant Video and YouTube contributing to a lesser degree, Espelien said. With a standalone HBO OTT service, “now you finally have another killer app for these devices — that’s got to make a difference,” he said.