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.