HBO Has Too Much To Lose From Offering Standalone HBO Go

Last week, we wrote about how HBO finally came out and hinted that it couldn’t yet financially justify offering its HBO Go online service as a standalone item. Of course, this isn’t stopping people from trying to make the case for HBO Go to go solo.

Over at the NY Times, writer Nick Bilton makes this argument for a standalone HBO Go:

Cable subscribers pay about $18 a month for HBO on top of basic cable and other cable television packages. HBO receives about $8 of that, and cable companies take in the rest. So, in my way of thinking, HBO is forgoing $12 of revenue from every person who would never get cable and $4 from those who would give up cable and get just HBO.

Which sounds like a good argument, and might even be a good argument if HBO were an independent company and not merely one subsidiary of a $30 billion multimedia empire.

As much of a hot topic as cord-cutting is right now, it is still a relatively small portion of the population that is turning off cable and going Internet-only.

If HBO were to offer HBO Go as a subscription service, the cost of maintaining a new business — customer service, customer acquisition, customer retention, billing — would chip away at that $12/month, perhaps leaving HBO with not much more than the $8 it makes now.

To make it worthwhile, HBO would need to reach an audience that is larger than those cord-cutters who are actually willing to pay $12/month, and it would need to continue to grow that audience.

And there’s the rub. HBO’s parent company Time Warner would be shooting itself in the foot right now by making HBO Go a standalone item. First, it would — according to the Times’ numbers — be taking away $10/month from cable companies for every person who switches to a standalone HBO Go. Second, cable companies stand to lose several times that amount for every person who decides that a subscription-based HBO Go is sufficient reason to drop cable entirely.

Even if that’s only say, one million people, do you expect the cable industry to stand by and happily watch hundreds of millions of dollars go out the door? Of course not. Just look at the mess that Dish has hopped into with its ad-skipping DVR.

For the consumer who still wants to have their cable TV, a standalone HBO Go would likely result in higher overall cable bills. For Time Warner, it would likely result in the nastiest carriage fee negotiations each time it has to come up with a new contract for its vast package of cable channels (Just a few: CNN, HLN, TNT, TBS).

While we’re on the topic of these cable channels, the few extra bucks (or maybe just cents) that HBO would make from selling HBO Go independently would probably not make up for the total loss in fees and advertising that result in a shrinking cable audience.

If anything, Time Warner currently has a vested interest in getting more people to subscribe to basic cable services, so it’s incredibly unlikely it would do anything with one of its flagship premium networks that would drive people away from paying for cable.

After all, the entire idea of HBO Go is that it’s added value to having HBO on your TV. It is intended as a way to retain customers.

The Times article seems to make the case that not offering HBO Go on its own is only driving people to Torrent sites where they can get an episode of True Blood and Game of Thrones for free almost immediately after it airs. This may be true, but we’re guessing that HBO and Time Warner look at most of those who download these shows illegally as people who would probably not pay for a standalone HBO Go; and that those Torrent downloaders who would pay are not yet large enough in number to justify the cost.

Don’t get us wrong. We’d love for HBO to offer HBO Go as its own service, but we’re realistic that it’s not going to happen without intense, protracted negotiations with cable companies — and that it likely will cost an awful lot more than $12/month if it ever does launch.

Comments

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  1. Cat says:

    “HBO’s parent company Time Warner”

    There’s the whole reason right there.

    FWIW, who needs HBO when you have the internets?

    • baineschile says:

      not everyone steals Game of Thrones and Trueblood

      • FashionablyDoomed says:

        Not everyone does, but everyone should.

        • Jawaka says:

          You can’t justify theft of service like this. Maybe if you were stealing food for your kids I’d be more forgiving but personally I hope Karma bites you in the ass and you lose your job because of cuts that had to be made due to losses due to theft.

      • Cat says:

        I say “Internet”, you assume stealing. All things come to those who wait. Legally.

        And nobody really “needs” Game of Thrones and Trueblood.

        • nocturnaljames says:

          umm get real. All things DO NOT come for free to those who wait, legally. You certainly aren’t getting HBO shows for free just because you have an internet connection, wake up to reality, or admit your piracy.

          • DemosCat says:

            And where in the above post did Cat suggest “free?”

          • Minze says:

            Free was never mentioned. You can get Season 1 of Game of Thrones on DVD for $34.00 new or $2.99 per episode to stream from Amazon. That’s what happens if you wait.

  2. HammRadio says:

    this >>>> “Don’t get us wrong. We’d love for HBO to offer HBO Go as its own service, but we’re realistic that it’s not going to happen without intense, protracted negotiations with cable companies — and that it likely will cost an awful lot more than $12/month if it ever does launch.”

  3. sirwired says:

    Congratulations Chris! The Consumerist is now Officially Grown Up (ish.)! That was a well-balanced, pragmatic article that looks at an anti-consumer situation and simply accepts that there is no consumer-friendly resolution viable at this time for all stakeholders. The cable companies have a legitimate business interest in HBO not cutting them out of the loop, and would be perfectly justified in retaliating if HBO did so.

    This is a big step up from many Consumerist articles in times past, which have often utterly ignored the non-consumer side of the coin.

    • blueman says:

      You have trouble with critical thinking, I see.

    • finbar says:

      Thank goodness. The interests of big business are really under-represented in government and the media so it’s good that consumerist is taking a more “fair and balanced” approach.

      • sirwired says:

        There is hardly a shortage of extreme, poorly-written crap on either “side”. An article that actually considers both sides of the equation is refreshing.

    • RvLeshrac says:

      I already have a pro-consumer solution handy. Instead of HBO getting a sum of money, they get $0, and I still get the shows. When they want to grow up and discuss the opportunity to sell me their product, I’ll be waiting.

      • sirwired says:

        Your mistake is thinking that you are one of their potential customers. HBO’s customers are cable and satellite companies, not end users.

        Like any business, they want to avoid pissing off their customers. Selling HBO directly to end users, and cutting their business partners out of the loop entirely would be a bad idea.

        • StarKillerX says:

          Beyond that, most of those who use “they wont sell it to me my way” crowd are actually just cheap and even if HBO GO was offered online for $12 I’d bet that most of these people would simply come up with another justification for stealing the programing.

  4. gman863 says:

    From a financial prospective, this could have made HBO stand for Huge Blunder Online.

  5. SporadicBlah says:

    I DL’d HBO Go for my Kindle Fire. Haven’t been able to get it to work :( Just keeps LOADING………………………………….forever.

    • nishioka says:

      > my Kindle Fire

      Found your problem! ;)

      • SporadicBlah says:

        HAHA! It’s great entertainment when you’re taking a shit though. The Kindle Fire is a toy. For $200 you can play some games and watch some movies. Its got a nice book size feel and the graphics aren’t bad. But it’s still a toy. Those who hate it are simply expecting too much from a TOY. And since it’s great in the bathroom, I use mine every day.

  6. Mark702 says:

    If you only watch a few shows on HBO, you’re better off to just buy the Season DVDs on sale, and have the added benefit of watching on your own schedule.

    Or do like I and many others do, cancel cable service totally (I did in 2007), and find alternative like Hulu, Netflix streaming, download torrents, buy season dvds on major sales, use Redbox, and whatever else you can find. Any reduction in overall tv watching time can be spent for other things like video games, exercise, physical activities like biking or hikes, cooking homemade meals, etc.

    I was paying $80/month for a premium HD movie channel package, that’s $960/year or $5,280 over the last 5.5 years I’ve not had cable. I’m very happy with my decision to cut the cord.

  7. who? says:

    The article is probably correct. But this is the same NY Times that wrote an article last week saying that the trend is for twenty-somethings to get their “Game of Thrones” on by sponging off of their parents’ cable subscriptions to get HBOGo. Something I can attest to. I have a pile of highly paid recent college grads working for me, the kind of kids that could actually afford cable if they wanted it. I don’t think a single one of them has cable, though. They all have 4G smartphones, iPads, the highest speed internet they can get, and netflix subscriptions, but not a single one has either cable or a landline. They’re all up on Game of Thrones, though. Some of them sponge off their parents, and some torrent, but they all have a way to get it.

    Sticking with the cable-only model is probably the best path for Time Warner *right now.* But it won’t be the best way forever.

    • axhandler1 says:

      Yep, that’s exactly what I’m doing. My parents get HBO, but have no idea what HBO Go is and no real interest in using it. I got one of their cable bills, went online, and signed them up for HBO Go for free, and now can access it whenever I want. All caught up on Game of Thrones, about to go back and catch up on True Blood now that the new season started. HBO Go FTW!

    • ianmac47 says:

      I think your shock at this is perhaps the real problem here. In a world with lots of ways to spend money, cable television services are fairly low on the list of priorities. Ultimately its not about not paying for services, but a realignment of the value of services. Its the same reason other media sales are down; because there are many more options competing for entertainment dollars, consumers are making choices and not always along the lines of traditional revenue streams.

  8. zandar says:

    and media companies complain about piracy. tsk.

    • Hartwig says:

      And Game of Thrones is the most pirated of all shows currently. You would think they would look at those stats and say, how can we reduce piracy, oh by either offering the shows through HBO Go, or by renting/selling the episodes on Amazon and ITunes sooner than a year out.

      This is the music industry all over again, and i think the movie/tv industry may be even more stubborn.

    • Geekybiker says:

      Trouble is there isn’t a legitimate way to watch the show without cable or being a pirate. No subscription, no legal online outlets like amazon or itunes. Nothing. Its the whole MP3 situation all over again. If you don’t give consumers a legal outlet for what they want to do, you’ll drive them to the illegal onces given how easy it is.

  9. GoldVRod says:

    Is it just me or does this article sort of insinuate that people are buying cable solely for HBO?

    It seems to suggest that by offering HBO as a separate entity many people would cut the cord and thus my opening question. You see, I’m not sure that people are spending $150 a month to get HBO – and the other channels they get are just a bonus. If true then that’s bloody crazy.

    Secondly, yes cable/satellite co’s could lose out on such a deal deal and Time Warner would be the only beneficiary of such a move but so what? Why do TW care? From the numbers above it’s a wash at $8 nett profit. Surely $8 profit is betting than nothing. Otherwise we go back to the idea that cable subscribers are paying circa $2000 a year for HBO.

    Finally I absolutely do not believe that the admin costs of offering HBO as a separate entity at anywhere near 60%. Don’t forget HBO Go already exists – that’s a done deal systematically and financially. All they’d need to do is have a separate billing account area for non-cable/sat customers. It’s another field in their customer database.

    Ultimately I can’t believe that a system where “Have a cable account – HBO Go is free. Don’t have one then please sign up and pay us $18 a month.” is unworkable nor do I believe it would cost massive amounts to run some trials in test markets where cable/sat subscription is low.

    • rugman11 says:

      I’m sure there are plenty. Every time we have one of these articles we get dozens of people talking about how they never watch cable, but they would subscribe to HBOGo if it were only $X/month, where “X” is less than the current cost of cable + HBO. For some people “X” is $15, for others it’s $30, for still others it’s $50, and I’m sure somewhere out there there are people who are willing to pay for cable and HBO exclusively to get cable.

    • who? says:

      Are people paying $100/mo to subscribe to cable *just* to get HBO? Probably not. But…in my own case, when I was considering cutting the cord, I looked at what I would be missing if I canceled cable, and what the alternatives were, and ultimately, it was HBO that stopped me from cutting the cord. This went on for two years, until the cable co raised my rates again, and I decided even HBO wasn’t worth $1300 every year.

      • RvLeshrac says:

        Isn’t it amazing how, instead of charging a fair and reasonable rate, they continue to *raise* rates until customers decide to cut them off and find other methods for obtaining their media?

        • rugman11 says:

          Actually, if you think about it, cable is a pretty good value in terms of entertainment dollars per hour. Even at $100/month, if you watch more than five hours of TV per week, you’re getting better value than a $10 movie ticket.

          • StarKillerX says:

            Shhhhh…..

            Stop that, throwing out that simple fact will really annoy those trying to justify stealing programing rather then paying for it.

  10. jaydez860 says:

    I’d be willing to pay $19 for stand alone HBO Go. I cut the cord almost a year ago and couldnt be happier. I would even be willing to have them limit the content. They could wait until the last day of a season airing to put it on the Go service and I would still be happy with it.

    • rugman11 says:

      But would be willing to sign a multi-year contract like the cable companies are? Sure, $19/month from 20 million subscribers might sound great, but what happens when half of those customers drop their subscriptions because Game of Thrones is no longer on the air? HBO relies on a steady revenue stream that they can get through the current model but can’t if they lose the middleman.

      • who? says:

        How is that different from how it is with a cable subscription? When I had cable, I never had a contract. I think the only rule was that when I added HBO I had to keep it for at least 90 days. What was to stop me from dropping HBO from my cable package when the Game of Thrones season ended?

      • pythonspam says:

        Heaven forbid HBO be forced to continue to produce (or distribute) quality content.
        Sure the hot ticket now may be Game of Thrones, but it is the other original content and distribution of recent (ok, 6-11 months after dvd release) movies that retain the subscriber base.

        • rugman11 says:

          My point is, nobody has given me a good reason for why HBO should eschew relationships and agreements it’s had for three decades and incur great (and potentially ruinous) costs to itself, all to appease a still small (if extremely vocal minority).

  11. raincntry says:

    HBO and other content providers will either provide their customers with access to content in a way that best fits the customer’s needs, or they will continue to lose business. People torrent and use HBO Go because that’s how they want to watch HBO’s shows.

    While I understand the monetary argument, its not an either/or proposition. HBO can still continue their anticompetitive practice with the Time Warner conglomerate AND allow people to buy instant access to their shows.

    That they have failed to do so shows a lack of imagination on HBO/Time Warner’s part. The more they fight this, the more the accelerate their own demise.

    • ferozadh says:

      Very well said. This is reminiscent of the Napster debacle. Look at the music industry now. Digital technology gives you so much more granularity in your service. Take advantage of it.

      • rugman11 says:

        Bad analogy. The music industry is in shambles precisely because the acquiesced to the pirates in the form of iTunes, giving them what they wanted (the ability to pay a small amount of money for single songs). The primary source of revenue for music companies is album sales, which are tumbling precipitously as more and more people buy their music in individual songs. I would think this will make HBO LESS likely to change their model, because they’ve seen how trying to monetize pirates can actually hurt an industry in the long run.

        • who? says:

          Wanting to buy an individual song makes someone a pirate? Where on earth did that come from?

          Record companies are failing because they haven’t figured out how to make money when there’s no physical disk involved. I personally don’t spend much time worrying about the record industry, because individual musicians have learned how to self publish and self promote, and are making more money for themselves than they ever could have by signing a record contract. The record deal was always a better deal for the record company than it ever was for the musician.

          • rugman11 says:

            Prior to the destruction of Napster and other file-sharing sites, one of the principle arguments of media pirates was that they WOULD purchase music legally if the recording industry only gave them some means of doing so. The recording industry, in an attempt to monetize the pirates, signed on to iTunes as a legal digital distribution model. What they didn’t expect was that it would completely change the way people thought of music.

            Read this business week article (http://www.businessinsider.com/these-charts-explain-the-real-death-of-the-music-industry-2011-2). The death of the recording industry isn’t about physical vs. digital, it’s about albums vs. singles. As recently as 2000, more than 90 percent of music revenues came from album sales. That number is now less than 70 percent. In 2000, the average person purchased almost four albums per year. That number is now 1 physical album and .25 digital albums per person per year. Single sales have skyrocketed (from almost nothing to 4 per capita), but those sales bring far less revenue.

            That’s what the TV industry when people suggest unbundling from cable in order to provide their content directly to consumers. The big difference is that, whereas music piracy was widespread and accepted, TV piracy hasn’t spread as much and it hasn’t had as big of an impact on industry revenues. They don’t like the idea of piracy, but if the alternative to the status quo is the recording industry, they’ll stick with the status quo.

            • jim says:

              Bingo. The TV and Movie industry learned their lessons from the music and newspaper industries which to be frank is to ignore what people say and ignore silicon valley. There is no money from online content. The newspaper industry is almost dead because of the way they dealt with the internet and the music industry is not that far behind. The internet increases cost not lowers them because of the huge increase marketing required to reach an audiance. Any one in HBO managment that even thinks of offering this right now should be fired on the spot.

    • ldillon says:

      This also means that there is room for original content companies to sell their shows directly to Netflix, etc.

    • slightlyjaded says:

      But HBO isn’t losing customers. In fact, HBO is doing really, really well with its current business model. And while there are plenty of people who really want HBO to offer a standalone streaming service, and while those people are really loud on the Internet, they still represent a relatively puny audience.

      Alyssa Rosenberg described this last week:
      http://thinkprogress.org/alyssa/2012/06/07/495931/cord-cutters-and-time-shifters-v-the-rest-of-the-country/

      “…HBO estimated that while there are 77 million households that have committed to buying cable but aren’t subscribed to HBO, there are only 3 million households that have broadband but not cable, and that fall into HBO’s target income bracket. Far more subscribers are invested in cable’s basic model, but are yet to be convinced by HBO’s specific product than there are consumers who only want HBO on the condition that HBO move away from the model that’s allowed it to make gorgeous, intellectually rich programming.”

      • raincntry says:

        Well, I didn’t say it would be the demise of HBO right now. However and independent study revealed that, “According to the report, nearly 9 percent of TV homes cut the cable in 2011 with 11% of homes planning to watch more TV online.

        The current household bill for cable TV is $86 per month for a combination of basic and premium channels. By 2015 that number is expected to reach $123 and then $200 by 2020.”

        http://www.inquisitr.com/218409/200-cable-bills-by-2020-9-percent-of-us-households-ditched-cable-in-2011/

        The study was done by the global market research firm NPD, so feel free to attack their credibility or the accuracy of their study.

        So, my point is that HBO’s current business model, which they claim is profitable, experienced a 9% decline in 2011. I would hazard a guess that the decline will at least be equal in 2012. Couple that with the 11% increase in online viewership, and it becomes increasingly likely that the rate of subscriber loss will accelerate.

        HBO and other cable companies make some really good products, Game of Thrones, V.P., Girls, etc. If the rate of decrease holds steady, that 77 million household number quoted by Think Progress looks more like 52 million after just 5 years, and under 30 million after 10 years.

        The trend in content consumption has changed. It will not go back to the classic model no matter how much HBO and Time Warner stomp their feet. My point was, and is, that the sooner they embrace these new models, the better off they will be and the happier their customers will be.

        • rugman11 says:

          I’d love to see the citation on that 9% number. I have a tough time believing that 10 million people cut their cable subscription. That kind of drop in user base would be screamed from the rooftops. The numbers I have from the National Cable & Television Association (based on SNL Kagan data) had 104 million cable TV subscribers in 2011, down from 104.5 million in 2010.

          • RvLeshrac says:

            Don’t forget population increases. If subscriber numbers dropped by .5 million, but 2.5 million new “homes” were created, that’s 3 million lost subscriptions, not .5.

            And yes, that’s a ridiculous concept, but that’s the one they use to determine subscriber statistics.

        • slightlyjaded says:

          Your point that HBO will be better off by embracing the standalone online streaming model now, even if it implodes their currently quite profitable cable-first model, is just flat wrong. HBO will be better off by continuing to embrace the model that is making them giant buckets of cash, even if that means ticking off the tiny minority of people who stomp their feet and whine about having to wait a few months to buy episodes on iTunes. When that tiny minority begins to exist in the same ballpark as cable TV’s addressable subscriber base, HBO can and will figure out a way to make that transition.

  12. MutantMonkey says:

    P2P networks seem to have the infrastructure issue nailed down.

  13. gerrylum says:

    You could also find a friend who subscribes to HBO, and pay them a small monthly fee to use their HBOGo account.

  14. c_c says:

    Time Warner ≠Time Warner Cable

    TWC was spun-off from Time Warner in 2009, so lost revenue from TWC does not impact HBO’s parent company, Time Warner. Confusing, yes.

  15. Alliance to Restore the Republic of the United States of America says:

    Don’t care about the details. Just want the show without all the crap I don’t want like ads, cable companies, etc. I’ll gladly pay for it. If they can’t do that then they don’t get me as a customer. Simple.

  16. Hartwig says:

    They could just as easily offer the episodes for sale on ITunes and Amazon earlier than 1 year after the show airs. Would cut into piracy numbers and every other network already does this so the cable companies can’t really argue.

  17. dush says:

    There’s no good arguement for HBO at all let alone stand-alone. It’s just tv shows.

  18. the_Jenkins says:

    I finally cut our cords last week! We’ve got streaming only Netflix (at the moment) and are watching a friends Hulu Plus. We have what we need to stay up to speed and our kids have all the cartoons they need when we let them watch (Super Y to the rescue!). We’re saving $60 already by cutting cable; internet went up but by $10 a month.

    • gellfex says:

      Welcome to the sane side! My kids thought they would die without Nick when we did it several years ago, but Netflix and such has been fine.

      Cable is “dead business plan walking”. It’s just a matter of time. Bits are bits, but they’re trying to say video bits are different than any other bitpackets you get by your broadband. And that broadband costs twice what it should, we need more competition to the cable/phone duopoly.

  19. Shouhdes says:

    I torrent wildly.

    I also maintain a subscription to netflix and huluplus. If i could get a subscription to HBOgo (although I get it free from work) I would pay for it. I was rather stream a high quality version instantly, rather than wait for a decent version to come out, and then download it.

    So, yes. I torrent (or steal) but not because I don’t want to pay. I am perfectly willing to pay. But I don’t want to pay for service I don’t want. Basic/Expanded basic cable. I don’t want any of that.

    • rugman11 says:

      C’mon, that’s crap. You’re willing to pay A price, but you’re not willing to pay the price they want to charge. If you wanted Game of Thrones right now, you could pay $75 and have it (one month of cable+HBO+HBOGo). And if you wanted to avoid cable, you could just wait for the DVD/iTunes version to come out and avoid them. Hell, you could wait until your library gets a copy and borrow it from them for free.

      Don’t try to justify your torrenting as HBO somehow “forcing” you. Just admit that you’re either to cheap or too impatient (or both) to get their shows legally.

      • Menelly says:

        I kind of go for the middle approach. I’ll admit, I torrent them. I want to see it when it’s fresh.

        When it comes out on DVD, I also purchase the DVD so they make their money. I find it worth the cost to me. I figure if I buy the DVD, it kind of makes up for it. ;)

    • StarKillerX says:

      Shouhdes,

      Many will make the same claim as you, but I’m sure most would find another excuse not to pay were HBO Go offered standalone over the internet.

  20. suez says:

    Why won’t HBO allow their shows to stream through Netflix? Seems to me everyone could benefit.

    • rugman11 says:

      HBO uses HBOGo as an enticement for subscribers to stick around after their favorite shows end. “Stick with us when Game of Thrones goes dark for 42 weeks and you’ll get to watch The Sopranos, Oz, Boardwalk Empire, The Wire, etc. in the mean time.” If they gave Netflix access to those shows, they’d lose subscribers who watch Game of Thrones but not True Blood or Boardwalk Empire, or vice versa.

    • incident_man says:

      Well they wouldn’t have a monopoly on that arrangement, would they? It just wouldn’t look good on their MBA’s Excel spreadsheets and PowerPoint presentations.

  21. liz.lemonade says:

    Something that a lot of people seem to forget is that television shows cost money to produce. One episode of “Game of Thrones” costs upwards of $5 million. ONE episode. HBO spends fifty million bucks for a season of GoT because they believe it attracts subscribers and helps their overall bottom line. The same is true with many, many other fan favorite shows — though the non-premium cable produce shows to attract advertisers instead of subscribers. They’re not going to bring in millions of bucks in ads on streaming video — at least, not the way the advertising industry works now. And when a show ceases to be profitable for a network, they’ll cease to produce it.

    I don’t really give a toss about the legalities of cord-cutting and torrents. Whatever. I’ve used both before, and they have their benefits. But I do care about keeping my favorite shows around… and I get increasingly frustrated by the entitled masses who want everything for free/cheap but forget the EXPENSE on the other side of the equation.

  22. incident_man says:

    Well, I guess if Time Warner offered HBO Go as a standalone product, then they would feel that they’re missing out on all the other revenue they’d make from all the other garbage they peddle. I’d dare say the senior leadership team and the CEO would miss out on all their extravagant perks and bonuses. Can’t have that, now can we?