film_girl

Dear People That Want Over-the-Top HBO…

So I read MG’s impassioned plea to HBO. I get it, I do. It doesn’t change reality.

We are not (yet) at a point where direct over-the-top subscriptions make ANY kind of sense for HBO.

I discussed this at the bottom of my “thoughts on an Apple TV” last month, but I’ll go over the basics again.

When I previously discussed HBO’s revenue stream, my estimated figures were off. According to this excellent article in The Economist HBO likely gets less per subscriber than I had said — though they still get significantly more than they would if they did an over-the-top deal.

A few facts and figures:

• HBO has 28m subscribers. It lost about 680,000 subscribers between 2009 and 2010 but its revenue went up — which as The Economist notes, means that the subscribers it lost were likely not long-term subscribers.

• HBO did $4b in revenue in 2010 and accounted for 1/4 of Time Warner’s entire operating profit. This is a big one. HBO is one of the most profitable and important parts of the Time Warner conglomerate.

• According to The Economist, HBO splits its fee with the cablers by like 50/50. I assume this doesn’t include many of the cabler incentives and packaged bundling rates, which likely still earn HBO the same or near the same per subscriber.

• HBO Go has been downloaded over 5 million times in 6 months and now reaches 98% of subscribers.

Pure Economics

MG says that millions just like him are willing to pay $20 a month for HBO over-the-top. Sadly, I think he’s mistaken. In fact, I feel certain of it. It’s one thing when HBO is bundled into your overall plan, it’s another when it’s a separate line item.

Plus, the number of people you could possibly reach won’t outweigh the money you lose by not having sweetheart deals with the cablers. At least not now. Maybe in 3 years. Maybe not.

At any rate, trying to force a company to go against their financial interests because it helps you out seems stupid to me. Especially since if they were to do that, the money for shows like Boardwalk Empire and Game of Thrones would start to disappear.

HBO is Taking Risks

What I really take issue with though is this notion that HBO hasn’t done anything extraordinary or risky or future-proof with HBO Go.

Having spoken with HBO, I know that a main reason that HBO Go was crafted was to keep people subscribed year-round. See, this is another problem with over-the-top that people don’t realize — people drop and re-pickup subscriptions frequently. Netflix sees attrition and rejoins, HBO does too.

To limit this, HBO decided to beef up its offerings and incentivize people to stay subscribers year round. They did this at the expense of an already profitable business: Home video.

In the late 1990s, with the rise of DVDs and shows like Sex and the City and The Sopranos that attained a sort of pop culture status that transcended past HBO originals (including the critically acclaimed Larry Sanders Show and Oz), HBO was one of the first to benefit from the TV on home video market. In fact, I recall buying season 1 of The Sopranos for my dad on VHS accidentally because the box was the same size as the DVD version (it was later exchanged).

The TV on DVD movement was a huge boon to the TV industry — especially with catalog titles. Still, few networks could charge what HBO charged for seasons of its dramas. Even with my Best Buy employee discount (which basically amounted to cost), The Sopranos and Six Feet Under were hella expensive. And they were also huge sellers.

I bought every season of Sex and the City on DVD the day it came out — and I got the complete series of The Wire at some insane Amazon discount and got all six seasons of Oz for like $120, also from Amazon. I prided myself in being the ultimate DVD deal shopper and I still paid a lot to get my favorite HBO shows on home video.

HBO decided to give up that revenue in order to bring HBO Go to the masses. That was a big risk, and it’s a risk I don’t think enough people respect.

Bundling Under Another Name is Still Bundling

Let’s say that all our favorite channels do go a la carte, let’s take it out to its natural progression.

I’m going to re-paste what I wrote in November:

If anything, what I foresee happening is the idea that we lose the current cable structure, only to see it repackaged and sold back to us over the top by the same people.

For instance: Cablevision is my ISP and my TV provider. If Cablevision offered me a package of content that included or even was primarily over-the-top content and let me buy them in different bundles — the Time Warner bundle (HBO, TBS, TNT, Cartoon Network, CNN), the NBCUniversal Bundle (USA, NBC, Bravo, CNBC), the Disney Bundle (ABC, ESPN, Disney Channel, SoapNet), the News Corp bundle (Fox, FX, Fox News) and the Discovery Communications Bundle (Discovery, History, Animal Planet, A&E), etc., I would likely take them up on it. Let’s say they charge us a nice, even $15 per bundle — $20 if the bundle includes a premium channel like HBO.

Of course you say, well I’ll only do one or two bundles — but then you really want to get Discovery’s package cos without Discovery ID, life isn’t complete. Oh, and I better get that Viacom bundle because if I don’t get Jersey Shore, I’ll be cranky. Damn, and I’ll need the Sony and CBS (not to be confused with the Viacom bundle) bundles too. Oh — but if I agree to get all the bundles together, I can save!

By the time you pile stuff on and then pay your extra surcharge for your increased data usage, you’re paying the same as you were when it was called a digital cable bill and Internet was an add-on.

See, that’s why a la carte programming doesn’t work.

So you say you don’t want cable, but in five years you’ll likely be paying for an over-the-top cable bundle from your ISP (who is also likely your cable company) for the same price as you pay for cable now.

HBO Go is Amazing

I bogart my parents account now until Cablevision rolls theirs out and I can’t wait to get it. It makes cable worth it to me. In fact, TV Everywhere makes cable worth it to me.

But then, I like TV.