Each industry has only several big bang moments over the course of history. Moments when a major event happens after which nothing will ever be the same again. In online video we had a big bang moment like that when Google acquired YouTube in 2002, investing $1.65 billion in the promise of online video. Since then, when imagining what would change the online video industry forever (again) I had two scenarios: Apple releasing a groundbreaking television set and HBO going OTT and selling direct to consumer. Well, the big bang is here. Or is it? Before we can try to answer that question let’s review the reasons why HBO made this announcement.
Growth – since 2010, as Netflix was moving away from DVDs and adding millions of new steaming subscribers, analysts and reporters kept asking if the TV business is going to end up like the zombies on The Walking Dead and like the music business. “No”, they kept hearing from any TV executives in Hollywood and New York, “the TV business is very strong”. And they were right. Just look at FOX, ABC, Univision and especially CBS, which had a great 4 years since then. Viewers love lean-back and they love live TV.
It turns out that all along those reporters were asking the wrong question. The question should have been – is TV growing?
When HBO was looking at their future they weren’t looking at the 43 million people that still pay $15/month for HBO in the US (or about the 127 million subscribers they have globally). They were wondering where would the next 40 million US subscribers come from? They were thinking about their shareholders that care less about the next season of Game of Thrones, and more about growth.
So when looking at growth, HBO (and subscription television in general) isn’t doing well. Cable and satellite are not adding new subscribes as cord cutting is happening at a steady rate. Yes, HBO still earns about $1.68 billion per year, but it only added 2 million subscribers in the US in 2013. Where will new revenue come from? Maybe from 80 million US households that don’t have HBO today or maybe from the TV fans in Paris, Amsterdam and London. Not sure? Just look at Netflix’s international growth numbers – about 12 million per year at the current rate.
Control – HBO is still pretty far from launching a standalone service. It will happen “sometime in 2015”. So why make the announcement now? It’s less about the TV fans at this point, it’s mainly for the folks at the FCC. HBO is making a stand to launch an independent OTT video service, at a time when the cable giant Comcast is trying to merge with Time Warner Cable. If the merge is approved, Comcast would control 16 of 20 major broadband markets in the US. And, speaking of growth, it will also have 91% of Hispanic households. At that point, Comcast would have huge leverage over HBO. It could put pressure on HBO not to go direct but if it does, it could drop HBO from cable (unlikely scenario) or charge HBOGO huge dollars for bandwidth (very likely scenario, in the post net neutrality age). In other words, if the merger is approved, Comcast could hold HBO hostage. HBO, just like Netflix, doesn’t like the thought of being held captive. Netflix is fighting the deal on capitol hill. HBO is hoping the FCC will take note of its plans and at the very least put in place some checks to balance Comcast’s power.
So now, going back to the original question. Is HBO going direct a big bang moment? Will traditional TV become a walking dead? The answer is that we don’t know yet.
HBO’s announcement is a huge development but we still know very little about the service. For example, HBO will probably not cannibalize their cable business and therefore won’t charge less than $15/month. How many people will sign up for a service that costs twice as much as Netflix? I would assume that many. But what if HBO, which depends on a consistent cash flow to finance costly productions like Game of Thrones, would decide to charge subscribers on an annual basis? I’d say that $180/year for HBO is still a great deal, but existing cable subscribers that are hesitant about “shaving the cord” might prefer to keep cable and pay on a monthly basis.
Having said that, the revolution of online television is closer than ever. If content is king, than HBO is King Kong and that gorilla is making its move. CBS and Univision will follow. So how long will it take Showtime (which is owned by CBS) and others to go direct? Probably not very long.
And when it comes to distribution, it’s true that there is no Apple television in sight but with the existing AppleTV streamer, Chromecast and Roku – it is already quite easy to stream premium content over the top. If cable operators, satellite providers and telcos want to maintain both growth and control in future years – they need to make a move soon. I for one remain with my ear to the ground to see what the next exciting developments will be. Feel free to post your own theories below in the comments.
Iddo Shai (@iddopop) is Director of Product Marketing at Kaltura, a video platform providing paid over the top solutions to content owners and service providers.
- HBO is taking control of its future by investing in OTT - October 17, 2014
