Very good blog post. Not sure I'd watch the full video interview, but it was worth the time to read.
What I took away from it is this: A lot of our paying subscribers don't actually watch HBO, and we don't want to compete against the sources that deliver those subscribers to us.
(Every single discussion about this should always include a mention that Time Warner owns HBO, saves a lot of mental hamster wheeling.)
They forced a bad deal on competing networks via those networks' own customers. The prize was capturing margin and exporting cost of business.
The language about controlling the examples that consumers use as a frame of reference is telling. This is a business that has mastered the game of baiting 1st parties against 2nd parties while negotiating price as a 3rd party.
That one passed over me. Time Warner spun off Time Warner Cable in 2009. Someone knew what was coming, HBO has a better shot than I thought. HBO Go was fantastic when I used it last year, when I still had Uverse.
The interesting thing is that this seems to imply that HBO makes most of its revenue from people who don't use their product. This in turn implies some economic actors here are not acting rationally (for example, there are a significant number of subscribers who are willing to pay more for cable bundles containing HBO, but then don't actually watch HBO).
I actually do watch HBO, but I can see exactly how this works (and how I got sucked into the super-premium package). You sign up for the standard internet+tv bundle, for say $60. Then you get HD for an extra $10 or $15, then the DVR is only an extra $5 a month on top of that, and then they ask you about HBO. And you think, "I've seen some good shows on HBO, that's worth the additional small percentage of my cable bill (now up to $80/month)".
And then you don't watch HBO (or at least not as often as warrants the money you spent on it). It's like all those 'options' you get when buying a car (Only $200 for floormats? that sounds like a deal!). I think it's called the bundling effect or something similar.
You wouldn't think that the availability of HBO online for say $10/month would change that dynamic much, particularly if the additional cost on your cable bill to get HBO is less than that.
I would guess it's largely the same as a person who buys a premium gym membership but never uses it.
I would guess there's a lot of businesses that make money by charging people for things that they don't use.
Case in point , services that allow you to subscribe online but can only be canceled by telephone. Making a telephone call is not exactly difficult , but there must be a significant quantity of people who can't be bothered to do it in order to make it worth their while implementing that policy to begin with.
I see his argument.. but why not just partner with ISPs? If HBO doesn't want my $8 directly, then why not let AT&T (or whoever) charge me an extra $8/mo along with my DSL (or whatever) bill and get HBOGO? It would be nearly identical to their current model, but with different types of subscriber organizations distributing their content for them.
Because this is an act of war against other carries that currently carry HBO. Those carriers can drop HBO and cause revenue to drop much faster than broadband-only HBOGO subscribers will bring in new revenue. It's trading an existing, stable, proven revenue source for one that is none of the above at scale.
Edit: This is a summary of one of HBO's arguments. The dcurtis post examines a couple of other arguments. Positioning is an interesting one: How does HBO convince viewers that $5/mo is reasonable for just a few shows when Netflix is $8/mo for far more content? There are some really tough issues here.
I'll wait and see how Netflix does on producing original content; HBO seems really good at it. Over the years they've shot some amazing shows and the product speaks for itself. Even though I am a current Netflix subscriber I would still easily add HBOGO to my monthly bills for premium access to their content.
Also.. their largest carriers also serve a lot of cable internet, for most it wouldn't be adding a competition so much as adding another way to get at subscribers money. I'm not so sure they would be in a huge rush to drop them.
>> their largest carriers also serve a lot of cable internet, for most it wouldn't be adding a competition so much as adding another way to get at subscribers money.
The status quo is that the typical HBO sub has a cable bill over $150/mo, because he already has broadband. Helping that subscriber cut the cord and go Internet-only (while unbundling HBO) will therefore result in a lower cable bill for the subscriber. A portion of the money the subscriber saves comes out of the carrier's pocket. This is the classic trading of analog dollars for digital pennies, and carriers will resist it as long as they are able (in the absence of a new big revenue source).
Regarding positioning: HBO is very good at producing content, but so are a lot of the organizations that provide content to Netflix (e.g. CBS, NBC, TNT, Showtime, Disney, etc.) $8 gets you access to all of those vs. a hypothetical $5 to get the output of a single studio. It's going to be very hard for HBO to hold the line on pricing in that environment.
They don't have to drop HBO, they just have to stop advertising it. A large fraction of cable ads I see have the not-so-subtle message of: "BUY HBO! IF YOU DONT HAVE HBO THAN YOU ARE MISSING OUT AND YOUR FRIENDS WILL THINK YOU ARE UNCOOL"
How much revenue does HBO get from that marketing?
That's an interesting point. Maybe those ISPs who are also cable TV providers could bundle HBO with their high-tier Internet offerings instead of TV channel packages. In this case, one shouldn't petition HBO but the likes of Comcast, Time Warner (HBO's parent) and Verizon.
Worth reading before spouting the typical "I don't understand why HBO doesn't want my $5 a month."