By the time the numbers are right for HBO to move forward, it will be too late. They're right to make this choice for profits this year, and maybe next, and maybe even the year after that. But, if they want to be relevant in ten years, the changes need to be happening now. Otherwise, other players will come in under them and simply eat their lunch. They'll have no idea what hit them. I don't know who those players will be (Netflix seems a likely candidate, which is why some of the cable and movie companies have targeted them for retributive licensing deals or simply refuse to license), but they will come...because there's billions of dollars at stake, and there's always someone willing to work really hard on a billion dollar problem.
They're feeling pretty infallible right now, due to a slate of popular shows and a strong subscriber base. But, things change. And, with the Internet, things change faster than ever before.
The cable companies should be worried about new distribution models... I'm not sure HBO should. The internet, and online-focused content producers, have so far not had a noticable impact on the demand for their own shows. Rather, this is in many ways a golden age of quality television programming, and demand for HBO certainly appears to be on the rise.
So if the traditional cable model gets displaced, then HBO will be able to move then to make deals with the new distributors, or start distribution on their own, as long as they still have a product that millions of people want to pay a dozen bucks a month for.
(I'm not fully convinced the current cable model will get replaced... there are an awful lot of people who want nothing more than to be able to pay just one monthly fee to get an enormous amount of video content delivered. I believe the way it's delivered will continue to move towards a pure IP-based system for practical reasons, and I believe alternate services will increasingly provide options for people who really don't need a full cable package, but once you start talking about the amount of programming the average person or family watches, the flat-rate-watch-all-you-want model is extremely attractive for consumers and the cable companies already have the content.)
This is potentially valid, but I would present a counter-argument based on the events surrounding the Netflix vs. Starz negotiations and subsequent pulling of Starz content from Netflix.
Around the same time, Netflix announced new episodes of Arrested Development would be appearing exclusively on Netflix. Other expansions into exclusive content seem to indicate that Netflix is going the direction of competing with both the cable companies (distribution) and the content providers, by necessity. In order to continue growing, Netflix is having to make content, too. I would argue that's going to continue. Netflix will find shows in the still-fat middle of the long tail, and pick them up when they get canceled, and they'll probably go into new production, too.
Was it HBO's intention to make a potential future distribution partner into a direct content competitor? Probably not, but that's what happened. Other "distribution" plays will probably end up being force to do the same.
Netflix seems to be thinking ten years out. HBO seems to be thinking next quarter. HBO may be poised to make all the right moves when the time is right; I can't say what's going on behind the scenes, and I am definitely not an expert in the entertainment industry (I worked in broadcast TV for five years about 15 years ago, but that knowledge does not scale). But, the Internet is without a doubt the future of entertainment.
"once you start talking about the amount of programming the average person or family watches, the flat-rate-watch-all-you-want model is extremely attractive for consumers"
There are other values. Watching what you want, when you want, is extremely valuable to many people.
"Netflix will find shows in the still-fat middle of the long tail, and pick them up when they get canceled, and they'll probably go into new production, too."
In theory, yes. In praxis, the problem is that the production costs of picking up canceled shows don't make sense relative to the Netflix revenue model. TV productions are extraordinarily expensive. Talent deals are astronomical. Producers' fees, writers' salaries, even technicians' salaries, are dazzling. Union scales aren't cheap, either. The whole thing is very, very costly to produce. The reason a TV network can afford that cost is because a) it doesn't pay all the costs on its own, and b) it doesn't sell the content directly to its consumers. It sells massive amounts of advertising to a handful of deep-pocketed advertisers, and also makes money licensing the shows to cable networks and other distribution outlets.
Netflix, in the original content production business, faces the problem of having disintermediated a costly supply chain, and then having condensed that supply chain into itself. It eliminates the production company, the TV studio, and the TV network, replacing them all with Netflix, but bearing all of those costs as if they went up a three-part value chain (because it inherits all the costs that were already in place when the show was being produced for TV).
This is why I have to believe that Netflix will increasingly depend on for-Netflix originals, and not on picking up canceled TV shows. It may pick up a canceled show here or there, all of which will make great headlines and probably generate a lot of new users (or existing user loyalty). But these aquisitions will be loss leaders, serving primarily to grow the subscriber base at a considerable loss per show. They can't be the basis of a business model, in and of themselves.
TLDR: Netflix will need to build a first-rate originals business, perhaps aquiring canceled shows along the way to season the steak. The bulk of its future originals will be from production companies pitching content directly to Netflix, and not from Netflix's licensing existing content from other sources. Cost models don't translate very well from medium to medium.
Yup, this is a key point I think people miss. HBO is not an "inventor". They produce content. By and large, so long as that content is of consistently high-quality (especially if it remains higher-quality than competitors) I expect they will be able to weather the storms.
Heck, this is the whole reason the idea of "exclusives" exists. Comcast, DirectTV, Nintendo, Sony- they all understand that to many people the content is more compelling than the platform. Sure, platform is of consequence, but if you have no content, it doesn't matter if you have the best content delivery platform in history.
It is not the "inventor's dilemma", it is the "innovator's dilemma", and folks here are showing a mild lack of context on the history of HBO's innovations over the years.
For example, HBO is being presented as a content creation company. They didn't start out as one. They became a content creation company in response to VHS and later DVD and now Internet distribution. They were feeling that crunch when they were just a distributor of premium movies on cable; had they not innovated they would have died. Showtime made the same move. HBO is a market leader because of innovation.
So, I don't disagree with you. If they make great content, they're likely to remain relevant for a long time. But, they will have to evolve as cable (so-called "multichannel TV") fades in relevance...which it absolutely will. The convenience of streaming will guarantee that.
"But, if they want to be relevant in ten years, the changes need to be happening now."
Who's to say HBO doesn't have a plan they are slowing putting into play now? Obviously it's probably not a good ideal to publicly signal to your cable company partners that you have any sort of plan that doesn't involve relying on them in the future.
You know Apple saw the future of tablets because they were working on them for 5-8 years but until the day the iPad launched all you ever heard from Apple/Jobs was he couldn't figure out why anyone would ever want one and they were only good when you're on the toilet.
This may be wildly misguided but I have some faith that the people running HBO aren't idiots. HBO Go itself was way ahead of other channels in bringing their content on demand to customers with digital lifestyles. Yes there's a few major bridges they haven't crossed but that seems to currently be working in their favor. I think they're aware of where those bridges are and as producer of great content they are well positioned to cross them when the time comes.
I also have some confidence that people like Eddie Cue are making the case for the end run around the cable companies to HBO and other content producers behind closed doors. And if/when the big Apple TV This Time It's Really a TV launches maybe HBO will be a featured launch partner. Maybe that will be a good litmus test for whether HBO is going to thrive after the often heralded streaming revolution.
HBO is in an industry with extraordinary start up costs. How many series do they have going now? The Newsroom, True Blood, Boardwalk Empire, Game of Thrones? And three of those four are _excellent_ shows. Not many companies are going to be able to produce 4 quality series and just wait for paying customers to show up while they bleed millions. While HBO continues to produce content a whole level above everyone else (with the exception of AMC), they get a pass from me and my $10 a month. Quality art is more important to me than some geek fantasy of internet delivery.
What makes you think they won't be relevant in 10 years? They're not a distribution company like Netflix, Amazon or the cable companies. They have no direct relationship with subscribers. They don't deal with the marketing to customers, distribution or billing systems. They produce amazing original content, and the cable companies pay big money for it.
So until Netflix, Amazon, Apple, etc. have the viewers that would warrant paying HBO the incredible amount of money they currently get, it's in their best interest to stick with the cable companies.
Even if cord-cutting had a material impact on the cable companies (and there doesn't seem to be any evidence of that), HBO would have no problem getting their content on the next-gen distributors.
The armchair television executives have been amusing ever since this became a story, and I think it's because they don't understand their business model. Or like MartinCron said, they just can't get over that what's best for HBO isn't aligning with their own self-interest.
I'm also not sure if people are really thinking this through to the logical end. HBO is great because they don't have to consider ratings or cater to viewers' tastes. That would all change if they were responsible for getting people to pay for HBO GO.
I don't know that they won't. They may have all the pieces in place to move fast when the time comes. But, I know that other content is coming into existence outside of the old models (Arrested Development new episodes are being developed by and exclusively for Netflix, for example).
Of course, history would indicate that new entertainments do not necessarily displace old ones. Cable didn't displace broadcast (though it did slow the growth of broadcast and make a few of the less efficient operators either shape up or get bought up). VHS didn't kill theaters or cable movie channels, but it did raise the bar (it triggered some of the stuff you're talking about being the unique value of HBO; HBO was not always an original content provider).
But, I believe there's plenty of growth opportunities that HBO is currently missing.
> "But the whole idea that there’s a lot of people out there that want to drop multichannel TV, and just have a Netflix or an HBO — that’s not right. Look for the data, you won’t find them."
Well, what is the data then? Don't say it doesn't exist, tell me what the actual numbers are.
I know I don't have "multichannel TV" but would pay for HBO+Netflix. Now I'm actually kind of curious what percentage of Americans feel the same way.
"Americans spend 35 hours each week watching content across screens, and 94 percent of that is still on a traditional television."
(This isn't exactly the same as people who for-sure don't "want to" drop traditional TV, but my suspicion is that anyone consuming 35 hours (!!) a week needs the 100-channels-24-7 stream of traditional cable or satellite to sate them. Pay-as-you-go has a way to go before it's cost-effective compared to that.)
I would suggest looking at Comcast's subscriber numbers they release with their quarterly earnings. They are still gaining subscribers. I'm not sure they have recovered to pre-recession levels yet. Employment & housing have such a huge impact on the cable industry it's hard to decouple the data. You could argue the subscriber drops of previous years were due to IP video but now that the numbers are on the rebound that seems unlikely unless people switched to IP video exclusively and found it to be inadequate. It's also important to look at Comcast (and others) own IP video solutions which are not talked about a lot but may fill the void that would otherwise send customers into IP-only solutions. If you have Comcast and you want to watch TV on your iPad the easiest way is to just use the XFINITY TV app. The cable MSOs were very slow to take IP video seriously but, IMO, they are in much better shape now. I'm sure HBO is aware of this too. They are betting that bundled linear/IP services are going to be the way most customers consume media.
But it's worse than that. The number of households in the US has increased by about 1.1% per year for the past 20 years. If Comcast and HBO aren't growing their raw US subscriber numbers by at least 1.1% per year - probably more given that they mainly serve urban markets that typically outpace rural growth - then they're falling behind household growth.
Unsure. I know we haven't had cable/sat for six years now and haven't looked back. Sure, I miss the history channel from time to time, but the only time we watch TV is for superbowl, etc. The rest of the time we stream through netflix or amazon, so we went from $150 or so a month to 7.00 for amazon prime and 8.00 netflix.
I don't think we're alone, which gets to your point about how many people are out there. How would you even begin to measure that number?
I've found netflix's offering of old History channel programs to be pretty good. They are from the heyday of The History Channel (late 90s, early 2000s) when HC was making high production-quality shows that were actually about history. It's better than the live channel content.
It may be limited in how much content it has, but I've been watching it on and off for a few months and I still have a lot left.
I would recommend the old HC shows to anyone remotely interested in history. The 13 part mini-series on the US revolutionary war is the pinnacle of depth and production-value that you just can't find anywhere else, especially not on live TV. National Geographic also has high-quality stuff, but I have explored it less.
The cost to conduct a survey like this would be really interesting to know. I would love to see a kickstarter for surveys. Maybe survey's are too expensive though ...
I know I don't have "multichannel TV" but would pay for HBO+Netflix.
I would too, but that's not the right question to ask. You need to ask who would pay enough. I am told adding HBO to a cable subscription is about $20, and that is an add-on, which means it doesn't even include infrastructure, advertisement, delivery, etc. So, while there are plenty of people who would pay $3 to have HBO+Netflix, how many would pay enough?
Oh, I'm not saying they are huge costs, I'm just trying to point out that $20 doesn't necessarily capture all of the costs. You aren't paying $20 for HBO in isolation.
So because HBO is selling more subscriptions to HBO (due to having one of the most popular shows available), they're doing as well as they possibly can? That seems like it's ignoring all of the customers they could pick up and are sweeping aside as irrelevant.
Everything that Bewkes says indicates that he has preconceived notions of what he wants his business model to be. I would be very surprised if he wasn't cherry-picking data to meet his hypothesis. It's not very surprising that the CEO of a television conglomerate is sticking with forcing people to get cable subscriptions - that's probably better for Time Warner's bottom line, not HBO's.
When you get disrupted never wait until your financials start looking bad because of the disruption. At that point you're already too late to turn the company around, because it takes a few more years to do it, and you're quickly running out of time.
Look at RIM. They were breaking sales record after sales record up until 2010, because of brand inertia in the international markets. So they thought things are just fine because the financials look good. But that's not what they should look for when they get disrupted. They find out if their products/services actually make sense in the new "era". If they don't, then it's just a matter of time before the financials start looking bad, too, as the world moves on.
I seem to say this a lot, but don't forget that HBO doesn't pay for most of its advertising right now. Go into the lobby of any Cable store, or watch any add for cable in the US and at least one HBO show (or HBO by name) will be mentioned.
Probably far more complicated than that. If HBO receives $8 of a $20 subscription, and the cable company got $12, is the marketing that the cable company does free?
This isn't necessarily the whole story though. HBO also had the most pirated show of the first half of the year (Game of Thrones), possibly the whole year. Imagine how much greater their subscription numbers might be if they did offer some sort of HBO Go only plan. I would certainly be interested (and I have no intention of ever subscribing to the current cable service).
HBO is in the position to know. And what they are doing seems to be working out the best for them.
It's possible they are wrong, but if they are wrong they will be the ones suffering the consequences. If someone on the Internet saying "let me pay $10 and I'll buy it (maybe) and so will a bunch of other people" are wrong, they won't suffer the bad side effects.
It's like people complaining that NBC is hosting the "buggy-whip" Olympics when NBC is getting record high ratings. Maybe the people actually running the business actually know what they are doing.
There's no shame in trying to change the world to look the way you want it to look, so long as it doesn't come at the expense of other individuals. If people want the world of video entertainment to move entirely online, why shouldn't they try to make that happen?
I think they should try to make it happen, absolutely. I just think the "those people are fools refusing the money that I'm trying to give them (as long as it is on my terms)" argument is pretty shallow.
HBO is in a position to know, but HBO isn't in a position to make decisions on the basis of what benefits HBO. Rather, HBO has to do what's best for Time Warner as a whole regardless of whether what they decide is in HBO's interest.
"And what they are doing seems to be working out the best for them."
then
"It's possible they are wrong, but if they are wrong they will be the ones suffering the consequences."
You can't have it both ways.
My opinion: there's no way to know if they are right or wrong. I'm one of their new potential customers of HBO Go only. I pirated a bunch of HBO shows only because it was the only way for me to see them. I would have paid $10-15/mo to see them. I do, after all, want these shows I like to be successful and to make many more seasons.
Well, you could buy HBO through a cable provider, unless it's just completely not available in your country. In that case, it's extremely unlikely they'll offer Web access in your country either. So, really, you have another way, it's just not the way you want. Likewise, they release all their shows on DVD, Blu-Ray, etc. But, I suppose those aren't released when you want them to be. If you're interested in financially supporting your programming, I guess those would be the ways to legitimately do it.
Look I sympathize, I'm one of the people without cable who would buy HBO Go standalone but there aren't really that many of us.
Most of the people pirating GoT are people who (1) have cable and don't want to pay for HBO or (2) have cable and already pay for HBO but just want to watch it whenever/not wait for the long delayed DVD release.
One sign of cord cutter growth might be an emerging black market of people selling the use of their HBO subscriptions to people who want to stream the content.
There's really no telling how many Netflix people also have cable. I'm guessing a lot. In my state, 95% of the population has cable and I'm guessing a fair number of the other 5% are poor, ok with just broadcast or don't even have a tv (or watch it) for various reasons. Sure there's some like me but what 1%? Nationwide the number with cable is closer to 88%-90% I think but we're still talking 1-3% for cord cutters of which only a fraction are going to be paying for HBO.
I agree most Netflix users probably have cable, and won't cut cable until there is a critical mass of content available online. I do think there is a tipping point not that far off, and when it happens the businesses that are already well established online like Netflix are best positioned to reap the rewards. HBO can position itself in resistance to the change, but risk being caught flat footed when it happens.
"businesses that are already well established online like Netflix are best positioned to reap the rewards"
Netflix is in a tight spot where in some delivery schemes they are an extra middleman that could end up being unneeded. Content -> Netflix -> Apple -> Users can very quickly collapse to Content -> Apple -> Users. So if the sea change comes from a wildly popular new Apple Smart TV that's bad news for Netflix.
The same thing is going to be true if the cable companies manage to transfer their current cable monopoly to content on demand.
The "best positioned businesses" are probably the content producers because Content -> Users is realistic long term model. Which is why Netflix is ramping up their own content (Lillehammer, House of Cards, Arrested Development...).
That said even traditional content is under attack from all corners -- YouTube is commonly cited but there's also traditional console gaming, social apps, the social gaming apps, etc. In a few years I think we'll see more and more content startups based around animation-on-the-cheap tools like the forthcoming Source Filmmaker or NME (Taiwan Animated News). You could probably do a startup today that filled a cable channel with South Park quality original animation. Yes, that's very limited graphically but the competition (very low fee cable channels) is pretty godawful.
Content producers are positioned well in theory, but in reality are ill equipped to compete because their whole business is build around old dying models. See how the majors in the music industry have fared. It is near impossible for big media companies to make major business shifts - they just don't have the culture to support it.
Also, I'm not sure I'd call them content producers; they are more content financiers and distributors. Control of distribution is probably their main competitive advantage, which may be why they feel so threatened by the idea of shifting to the internet.
Reminds me of a few years ago, when many pundits were still poo-poo'ing criticisms of RIM and Nokia, because - hey, they're still selling tons of product to existing markets! Who cares if they're not considered cool by those weirdo iPhone/Android early adopters?
Why does everyone want to pay for HBO Go so much? Has anyone actually used it? I have, and it's absolutely horrible on both Mac and PC in any browser. It skips often, horrible picture quality, weird colors, not to mention a bad interface for finding and watching.
I just recently got the iPhone HBO Go app and it's awesome, never skips, crystal clear quality, easy to use. Why the enormous difference? Am I the only person experiencing this?
Remember one huge thing in this equation: HBO doesn't deal with subscribers! HBO has no subscriber database, hardly any customer support, no sensitive personally identifiable data to keep track of. The cable and satellite companies have to deal with all of that. That's why HBO isn't really interested in selling direct to subscribers.
I'm confident that starting from scratch with modern technology, HBO could build a customer service infrastructure that would easily surpass the low quality bar set by the cable companies.
So the issue here is that there are people who pay for cable (C), and people who don't pay for cable (!C). There are also people who would, all things being equal, pay for HBO (H), and people who would not (!H). It sounds like he is saying that C ∩ H is larger and/or more profitable than !C ∩ H, at least for now. And that catering to the latter would cannibalize more than it is worth.
That is probably true, if short-sighted. I wonder how hard it would be to undercut them and go for the small, but possibly growing !C market. I'm guessing pretty hard.
That's a nice saying, but it really doesn't have anything to do with anything. Yes, current data says that people still buy cable subscriptions, but that doesn't mean the trend will continue. Things change, and looking at data and expecting any patterns you see to exist perpetually is just as bad as citing anecdotes as though they were statistics.
Just because HBO could pick up customers by offering their service on the internet doesn't mean they'd increase profits as their other revenue streams could be cannibalized - DVD/iTunes/Amazon sales, cable subscriptions, etc.
My guess is that they have a team of smart finance people with a model that shows it's not worth it to offer an internet only service.
And, once the smart finance people's model shows that it is worth it to offer an internet-only service, they'll be ready. How difficult would it be to authenticate HBO Go clients against their own service rather than the cable company's?
I think the predictions of HBO's RIM-esque decline don't make sense, they know what they're doing.
I used to be on the side of wanting HBO to give an a-la carte. Heck, i don't want regular cable TV, i want to watch only HBO shows. But i remember talking to a person more experienced in the area explain the system.
HBO gets quite a cut from cable companies to have their channels on their lineup. cable providers subsidize HBO so more people can get their cable. If HBO cut all that money an a la carte option would probably cost more, maybe $25. At that point would people who have been asking for this option pay for it? One option is to have some online distributor like netflix or hulu cut that cost but i guess HBO hasn't found that option appealing.
All i'm trying to say is I think HBO is making the most amount of money right now without angering their cable partners. And from the looks of this article they are growing quite a bit. I think once the cable cutting market becomes bigger and more appealing, i don't see why HBO can't switch lanes. Their product will still sell because their content is good (which is why HBO is doing so well in the first place).
Once cable subscriptions start declining HBO will be in the position of power. The cable operators seem to feel that having the option of an HBO subscription on their network helps them to get/retain customers. If they are having issues with customers jumping ship, I would imagine that it would happen even faster if they dropped the HBO option from their line-up as retribution for HBO pushing their own streaming video offering (or teaming up with Netflix/Hulu/etc). From the customer's point-of-view, the lack of HBO would be another negative against the cable operator, and positive in favor of 'cutting the cord.'
That said, I definitely think that HBO should not rest on its laurels. They should be exploring these options, even if they aren't ready to execute on them yet.
[Note: all of this assumes that HBO continues to produce excellent/desirable content]
My brother subscribes to HBO solely for Game of Thrones. And then he drops the subscription after each season is over. I wonder how common that behavior is.
We're pretty ruthless about adding/dropping HBO/showtime as series are on/off the air, and usually only if there is more than one interesting series running concurrently. There's really no value to these networks other than the series, I could rent the few movies worth seeing on amazon or redbox for less than the fee.
I know it seems crazy to some of you but some people like to watch cable TV. We can shout HBO GO until we're blue in the face, there's not that many shows on it, really. There are arguably great shows on HBO Go but it's not that many and most of the seasons for each show are like 8 episodes long, great! Netflix .. really? OK, I get that is fashionable and everything but I don't ever see any data to back up that cable TV is done.
Also, as an aside, why is it so fashionable anyway? There's just all this pride of like "I haven't had cable or satelite in 6 years" or the "last time I had a cable was when Cheers was on but I turned it off and watched an interpretive dance instead."
Also, as an aside, why is it so fashionable anyway?
I think it's multifaceted and varies from person to person. I gave up cable for the same reason that a lot of people give up drinking... I couldn't handle it responsibly. I hit bottom, thinking "I've only seen this episode of 'Friends' a few times already, I'll watch this". So in order to keep from feeling like the TV is the default center of my life, I had to remove it.
By the time the numbers are right for HBO to move forward, it will be too late. They're right to make this choice for profits this year, and maybe next, and maybe even the year after that. But, if they want to be relevant in ten years, the changes need to be happening now. Otherwise, other players will come in under them and simply eat their lunch. They'll have no idea what hit them. I don't know who those players will be (Netflix seems a likely candidate, which is why some of the cable and movie companies have targeted them for retributive licensing deals or simply refuse to license), but they will come...because there's billions of dollars at stake, and there's always someone willing to work really hard on a billion dollar problem.
They're feeling pretty infallible right now, due to a slate of popular shows and a strong subscriber base. But, things change. And, with the Internet, things change faster than ever before.