Speaking at an investment conference earlier this week, Time Warner CEO Jeff Bewkes said that the company is “seriously considering what is the best way to deal with online distribution.” For the many who have been pushing HBO to package HBO GO as a separate entity for awhile now, this is no small statement. And with Netflix marching ever forward to corner the streaming market, this could be a crucial moment for HBO.
Yet offering HBO GO without a subscription to HBO presents a number of difficult questions. While it’s undoubtedly a tantalizing possibility, there are as many challenges inherent in this scenario as there are benefits.
Pro: Easier for “Cord Cutters” and Millennials to Watch Their Favorite Shows
Offering HBO GO sans HBO already gels with the way a large number of millennials watch television. According to newfound data, this is a demographic that ingests three times more TV online than their older counterparts.
These millennials are often lumped in as part of a larger group that’s been dubbed “cord cutters,” aka people who’ve dumped cable entirely to watch television through the Internet. And they’re a group that’s growing. A study that came out in June found that 2.9 percent of pay-TV consumers in this country are planning on canceling their cable service and joining the ranks of the cord cutters in the next year. This doesn’t sound like much until you take into account that this number is up from 2.7 percent last year, which was up from 2.2 percent the year before that, indicating American cord cutters are rising steadily.
Together, as millennials and cord cutters reject cable, they are changing the face of American television. HBO GO becoming its own service would be a huge victory for them, and for the shifting trends they represent.
Con: Harder for HBO to Create Content
However, offering HBO GO separately from HBO could come at a price. Because for now, HBO, and all the content they provide, are still very much entrenched in a classic model of distribution.
When viewers first started to clamor for standalone HBO GO accounts several years ago, Ryan Lawler at TechCrunch observed, “HBO currently has about 29 million subscribers and reportedly receives around $7 or $8 per subscriber per month. So HBO could, theoretically, get more per subscriber than it’s currently making. But that doesn’t include the cost of infrastructure needed to support delivery of all those streams, including all the CDN delivery and other costs that would come with rolling out a broader online-only service.”
He continues, “More importantly, it wouldn’t include the cost of sales, marketing, and support—and this is where HBO would really get screwed. Going direct to online customers by pitching HBO GO over-the-top would mean losing the support of its cable, satellite, and IPTV distributors. And since the Comcasts and the Time Warner Cables of the world are the top marketing channel for premium networks like HBO, it would be nearly impossible for HBO to make up for the loss of the cable provider’s marketing team or promotions.”
What does this ultimately mean for you, the consumer? In short, it means that if HBO suffers, their output also suffers.
So far, HBO is doing just fine in their fight against Netflix. Of course, they’re not able to provide the same wide array of movies and TV shows from other networks, but they’re as prestigious as ever, and they have several huge hits on their hands. In fact, Game of Thrones just surpassed The Sopranos to become their highest rated show ever.
But Game of Thrones costs around six million dollars an episode to produce, whereas the average Netflix original tops off between 3.8 to 4.5 million. That’s not to say that Netflix doesn’t have money to burn. Their recent acquisitions of the streaming rights to NBC’s The Blacklist and FOX’s Gotham (before the show even aired), not to mention the rumors that they’re on the verge of putting Seinfeld in their wheelhouse, emphatically prove as much. However, this is what Netflix does, this is what they’re good at. Their highly successful originals are only the half of why people keep coming back.
With HBO, on the other hand, the level of quality in their original programming, from their backlog to the shows they currently have on the air, is really the sole reason they’ve had so much success in the streaming world thus far. But without being as intrinsically tied to a more powerful cable empire, it’s not clear whether they’d be able to maintain such a consistent product.
HBO does have its limits. At $9 million per episode, their period drama Rome lasted only two seasons, unable to sustain without finding the kind of devotion Game of Thrones has. This type of risky venture could end up spelling disaster for the company, under different circumstances. And beyond that, it’s unlikely that cheaper but less watched shows would survive were HBO not insulated the way they are now. Buzzy entries like Girls would start to disappear, and even critical darlings like The Wire would have less room to breathe in a streaming-heavy environment.
Basically, offering HBO GO apart from HBO could end up giving the network less wiggle room, and as an outgrowth of that, the amount of daring programming HBO is able to produce could drop significantly.
Pro: Less Piracy
If there’s one thing people love more than watching HBO, it’s watching HBO illegally. This year, the premiere of Game of Thrones set a piracy record, as it had the three years previously, proving that huge ratings translate to huge torrenting.
And yet evidence suggests there are plenty of people willing to pay to stream HBO that aren’t willing to pay for it as a channel. In 2012, web designer Jake Caputo launched Take My Money, HBO!, a website/campaign to get the network to realize that they would have a ton of new customers on their hands if they would just sell HBO GO separately. Within 48 hours, the site had 163,673 people weighing in with how much they would pay for a separate HBO GO subscription, proving Caputo’s point for him.
A certain amount of torrenting is unavoidable. But clearly, there are people out there who want to watch HBO, and who are willing to pay money to do it, but who understandably don’t want to purchase a whole premium cable package. And with the average cable bill coming out to around $100/month these days, who can blame them?
Con: People are Still Going to Share Passwords
The bigger issue here is that even if HBO does cut down on piracy, offering HBO GO by itself doesn’t solve the problem of password-sharing, which is how many watch their content today.
A BuzzFeed article from back in January (entitled “HBO’s CEO Doesn’t Care That You Are Sharing Your HBO Go Password”) confused this matter, after the company’s Richard Plepler made some headline-grabbing comments to the website in New York.
“But that is not what Plepler actually said,” writes Jordan Weissmann at Slate, “When BuzzFeed’s Peter Lauria asked about the password-stealing issue, the CEO responded: ‘It’s not material to our business, number one. It’s not that we are unmindful of it, but it has no real effect on the business’” He then indeed suggested that the kids who used their parents’ passwords today might subscribe tomorrow. ‘To us, it’s in many ways a terrific marketing vehicle for the next generation of viewers, and it is actually not material at all to our business growth.’”
Weissman elaborates from there, suggesting, “To lay readers, that might sound like a green light to freeload. But more likely, it was just Plepler delivering an answer that wouldn’t spook investors. ‘Not material’ is SEC-approved speak for ‘nothing to see here, move along.’ When Plepler says there might even be an upside, it seemed like one more way to assure anybody with a financial interest in HBO’s performance that there’s nothing amiss.”
But something is amiss. Pleper’s assertion that a lot of kids who are using their parent’s HBO GO passwords might become future subscribers is probably accurate, but that doesn’t change the fundamental truth, which is that HBO is losing what should be potential business to the popularity of password sharing. Of course, if HBO GO becomes a separate option, some will pony up the cash for their own accounts. But that won’t make it any less easy to find someone who’s willing to tell you their (or their parent’s) password.
Pro: Takes Power Away From Evil Cable Companies
It’s more or less common knowledge at this point that if Time Warner Cable wasn’t evil before, their merger with Comcast has solidified it. That’s why there’s a certain pleasure to be taken from watching them squirm as they try to adjust in the new media landscape.
As for HBO’s part in this, their prized place atop the jewel in the Time Warner Cable crown has long been touted as the main reason why the big brass doesn’t want to offer a separate package for HBO GO. With all the money they make bundling HBO in with a bunch of crap you don’t want, why would they want to transition to a system wherein you only get what you do want?
Nevertheless, Comcast caved ever so slightly to the unyielding pressure of its dissatisfied customers last year, and began testing out a package in select markets that gave consumers broadband access, broadcast TV and HBO, i.e. exactly what many of them surely wanted. However, being so afraid of losing their stranglehold on the American public, they kept the whole thing quiet, as if no one talked about it, it might go away.
The reason for this is obvious. As John McDuling relayed at Quartz, “HBO doesn’t sell any advertising on its channels; it’s beholden to the affiliate fees it charges cable companies to use its content. Cable companies (including Time Warner Cable, which was spun off from Time Warner in 2009) are willing to pay top dollar for HBO and keep it bundled with their other less profitable channels, since it’s just about the only thing keeping cord cutters from abandoning ship.”
And as diabolically evil as Time Warner Cable and Comcast are, they are as scared of cord cutters as anyone else in traditional media.
Con: These Cable Companies Won’t Go Quietly
Don’t expect the old school powers that be to just lay down and die though. McDuling goes on from there to mention, “One analyst told Quartz: HBO makes ‘billions of dollars out of cable TV subscriptions. The entire [cable TV] ecosystem wants this to persist. It’s not just [HBO], its the whole industry.’”
And when you’re talking about billions with a “b,” it’s no wonder these companies are going to fight against adjusting to fit the consumers’ needs as long as possible. Consider that, according to the Wall Street Journal, “HBO generated $1.8 billion in operating profit in 2013, as revenue grew 4% to $4.9 billion, about 27 percent of Time Warner’s total.”
That’s an insane amount of money, especially as everyone obsessively continues to pit them against the rival Netflix. Saying HBO needs to adjust their business model for steaming purposes is likely true, but it still sounds funny when you think about how well they’re already doing.
Pro: It’s the Way of the Future
Alas, no matter how well they’re doing now, there will come a time when things will change, and HBO will be forced to change along with them.
In the world of television, this great change has been predicted for years, and while it’s almost universally acknowledged that it’s on the horizon, we remain a few steps away from getting there. For what feels like the thousandth time, Brian Moylan offered an explanation at the Guardian as to how this change will occur, and how HBO can be at the forefront of it all.
This is a smart move for HBO, because the future is about platforms, not cable channels. If you let me put on my sci-fi futurist hat for a moment, in the far future we will consume our “content” in an all on-demand marketplace. We won’t turn on HGTV hoping House Hunters will be on—we’ll go to one of the subscription services we pay for and watch however many episodes we want, or we’ll download them from somewhere bit by bit… Netflix, Hulu, iTunes, YouTube, Amazon and, potentially, HBO Go are the channels of the future, the platforms that will give us access to our shows. TV channels will just be producers, creating content that is distributed via platforms available wherever and whenever the customer wants. HGTV (or MTV or even NBC) won’t place their shows into linear time slots. They’ll just have a store on iTunes.
Con: That Future Might Be Just as Scary
Apple’s Tim Cook declared this week that “TV is stuck in the ’70s,” and for all intents and purposes, he’s right. Despite being close to a digital revolution, TV has a ways to go before it approaches the iTunes-like vision described by Moylan.
But even as TV crawls slowly albeit surely to that point, the guys at the head of the table are figuring out new and better ways to take your money from you. Sure, they might not rip you off in the way they did before, making you pay for a bunch of channels you don’t want. But you can bet they’ll try to rip you off somehow.
In a sense, this is already happening. Farhad Manjoo at the New York Times noted in February that Comcast’s bare-bones Internet plan is only about $10 less than their basic television package.
What does this mean? In the most unfortunate outcome, this means that if big cable gets its way, it will wean you off paying a fortune for TV, and onto paying a fortune for the Internet. Manjoo writes, “In most American households, the cable cord is the fastest conduit for broadband service. This suggests the canny strategy by which those once-inescapable cable providers might combat the rise of cord cutters: The cable giants will simply become even-more-inescapable Internet giants.”
He concludes, “The steady price increases in broadband rates cast a pall over any cord cutter’s dreams. It’s possible that you might still save money now by cutting off your cable. But if you plan to watch a lot of TV over the Internet, don’t expect to save money forever.”
The picture that is being painted here is all very sad and grim, but there are reasons not to despair yet. Nothing is set in stone, and with net neutrality up in the air, it’s still a shaky time for American consumers. But if we continue to demand to be paid attention to, then maybe, just maybe, we can have the Internet and the TV we want, at the same time.
Getting HBO GO on its own won’t get us there in one fell swoop, but it’s a good start.