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Our experiences are nearly mirror images. I cancelled cable TV years ago. When Game of Thrones came out last year, I naively thought "No big deal. I'll just pay HBO for streaming." I was shocked to discover that there's no way for me to upend my wallet into HBO's coffers without funneling it through Comcast and buying multiple tiers of garbage that I care nothing about.

I waited a year and bought the blu ray version, but I still can't understand why HBO wouldn't prefer to get their money earlier rather than later.

Completely agree with you. I was very excited when I heard about the HBO Go app and was looking forward to paying HBO for their excellent content. Similarly I was frustrated to find you need cable TV and Comcast to use it. Still trying to figure out a way to see the new season of Game of Thrones.

It's not that they wouldn't prefer to get their money earlier. It's that they are in bed with the cable companies, who have significant power because they provide a huge chunk of HBO's revenue. HBO don't want to risk losing that revenue by disturbing the cosy relationship.

Cable companies are fiercely protective of their status as content providers. As they see it, the biggest threat to cable is that it gets turned into a commoditized dumb pipe. Any move by partners like HBO in the direction of supplying content over IP is seen as a move towards marginalizing their business.

And that's just it: cable has already turned into a commoditized dumb pipe for a large segment of the population. Instead of recognizing this new reality and adjusting to it, the cable industry seems intent on sticking its collective head in the sand and pretending as if the world hasn't changed.

The industry isn't sticking its head in the sand, they are out there aggressively purchasing content creation to ensure that the most interesting content is only delivered through their pipes. They're going out with all guns blazing in order to protect past rates of profit. Shareholders aren't of a mind to let an industry peacefully adjust to a less profitable state.

Bring back the trust busters.

I agree with your overall sentiment. But I still contend that this strategy isn't going to work out for them in the long run. We live in a world where content can be accessed directly, quickly, and on demand. The industry can try to "ensure" that the most interesting content is only delivered through their pipes, but given the ease with which this content can be procured elsewhere, that approach doesn't seem like a sustainable long-term strategy.

Yes but the C level executives will be retired or working somewhere else by then

Having done some work at cable companies ... both are dependent on each other. HBO has huge clout at the MSOs of the world, and they like it that way. At the same time, HBO makes MSOs lots of money because they can bundle it with kruft (e.g., Starz) and charge more than for either alone.

I couldn't agree more, as both a fan of HBO's content and a curious observer of its evolving business model.

For awhile there, it seemed as if HBO was making great strides in decoupling itself from the traditional cable model. HBO GO is a great app, and its launch represented an intriguing challenge to the status quo of the analog and digital content ecosystems.

We should keep in mind, however, that HBO is owned by Time Warner -- a company with plenty of vested interests in the status quo, not to mention a number of other cable and broadcast channels (CNN, Cartoon Network, CW, etc.) whose existence as discrete networks would be (in its view) threatened by overly disruptive maneuvers by one of its subsidiaries.

Furthermore, HBO's bread is buttered by the big cable providers. It makes the majority of its revenue from licensing fees to the likes of Comcast, Time Warner Cable (not presently owned by Time Warner, fwiw), AT&T, and the others.

Ultimately, I get the impression that HBO -- were it an independent business entity -- would be acting more aggressively to move away from the status quo. It seems to realize that it's aboard a slowly sinking ship. Unfortunately, it happens to be an officer of that ship's crew.

The weird is that they project this model in Europe as well, whereas they are not as tight to broadcasters here.

The other day, there was an ad on TV for HBO Go. I was like "wow, finally, HBO in Europe (in the Netherlands in this case), AND with an app?!"

So I went directly to my computer to look at the details with the firm intention to subscribe if it'd be a reasonable price (let's say 15 euros per month).

So I go on their website and what do I see ? To get the app, you need to subscribe to their cable channels. But wait ? I just want the streaming, I don't care about their channels (particularly because I am in a shared apartment).

But I thought "OK, let's see how much they cost", so I go to the next page, and what do I see ? HBO is only available on Zyggo. No way to get them with any other provider. And I'm sure not gonna switch providers, a lot of hassle in the first place, but even more in this case since it's a shared apartment and all.

Conclusion : they lost one customer, and probably more, because I have plenty of friends here that watch a lot of HBO shows, usually illegally acquired, because otherwise you get to see them 1 year later, that would probably have paid for it as well.

Way to go HBO !

I want to be able to send a text off a prepay phone that enables HBO content on a networked device.

This is technology that already exists for machines that sell packets of crisps, and last time I checked, running a tv company was at least as technical an endeavour as crisp manufacture, so it isn't as though they can claim not to have the skill to do this.

This reminds me of an old Jeff Atwood blog post Commandos, Infantry and Police [1].

HBO was innovative in their "commando" phase but now they're a large cable incumbent. They're either in the infantry or police phase now. Basically they're not concerned with gaining new territory. They're most concerned with defending their current position.

This is a problem every incumbent faces when they grow sufficiently large. Microsoft's decisions of the last 15 years have been borne of a fear that something will kill the Windows/Office golden goose.

The ultimate evolution of this defensive strategy is for a company to launch a conflagration of litigation, often with a new CEO, in a last-ditch effort to squeeze out some value. You saw it with SCO. You see it with Yahoo.

Defense is a short-term strategy. At the point you stop innovating you've already begun to die. It may take awhile. Billion dollar companies don't die overnight (although Groupon may prove me wrong). Yahoo has been dying a slow death for years.

I would gladly pay a (reasonable) monthly fee just for HBO. But I'm not going to pay $100+/month for cable and it. I pay for Netflix. At $8/month it may not have all the content but it's enough for me.

HBO is now locked in the same death spiral big cable is: big cable doesn't want a la carte cable because people either won't use it if it's too expensive or they'll spend less on cable, neither being a good outcome (for them). HBO needs big cable to distribute their content. My theory is they can't circumvent that without threatening what is their main source of income (big cable won't react well to being cut out of the loop). The risk of that strategy, from their perspective, is simply too high.

HBO should be afraid of the rise of the likes of AMC. If they're not careful the next generation of innovators is going to eat them for breakfast.

[1]: http://www.codinghorror.com/blog/2004/06/commandos-infantry-...

I don't think they're at particular risk of a death spiral. Atwood and Cringely were talking about product companies. Content companies work differently.

As long as HBO continues to make compelling content, various distributors will line up to buy it. For now, the US cable companies are the bulk of their revenue. But they already make $1bn or so annually from overseas sales of their programs, so it's not like they're unprepared to sell a show to somebody like Netflix, Amazon, or Apple.

I'm heading over to a friends house tonight for a group view of ep 3/4 of Game of Thrones. He pays for HBO, we pay for food. If HBO offered me delivery options that I could consume with my lack of cable/sat TV, I would gladly pay, and they'd get a cut of paycheck for their quality content. More interestingly is this "piracy" or simply lost revenue?

More interestingly is this "piracy" or simply lost revenue?

There's a difference?

That you see them as separate shows you aren't on board with the large groups focused on trying to force people to pay as often and as much as possible to access the content they control.

Since the media companies refuse to clearly provide a license and terms for their material I have no idea what it is.

To my knowledge, a group of friends watching a TV Show together from a DVR is not Piracy, but HBO isn't making money from me.

"They took big chances even when it wasn't profitable to do so."

Its an old story you will see repeated again and again. When you have nothing to lose, you take big chances, when you have lots to lose you mitigate risks.

"Of course, the problem is HBO is just too tightly coupled to big cable."

Given that 'big cable' represents a big chunk of their revenue I don't know if "too tightly coupled" represents it. Basically once the acquisition cost of digital content gets ahead of its marginal market value* the revenue stream becomes more and more at risk to alternate venues (like BitTorrent). My guess is that the 'blind spot' for a lot of companies that started before the prevalent Internet and are still around, aren't looking (or believing) the economics that show how they can thrive by sharing some of the ecosystem with the likes of NetFlix or Hulu or even YouTube. So it is left to a new 'HBO' which has nothing to lose to embrace the current mechanisms and markets and to be successful to lead the way.

* I define the term 'marginal market value' to be the net economic value derived from the difference between the lifetime value of a consumer purchase less the cost to acquire that consumer. Pre-existing structures like cable content agreements can create a revenue stream which is higher than the marginal market value for new customers, and when that happens, unless the company is thinking about it, they focus more on preserving those existing over valued relationships rather than building new consumer relationships to capture that value. Externally this expresses as a company whose margins and customers slowly erode over time until they either exit the market or things get back down to the marginal market value point and can start growing again.

To your last point, there was an article in the Economist last summer about HBO and the economics around it. Here's an excerpt as to why they don't decouple from cable TV:

"In future HBO Go could allow the network to bypass the entire pay-TV system. For now, going “over the top” in this way makes no sense, says Bill Nelson, HBO’s chief executive. There are roughly 105m multichannel TV households in America, of which 77m do not subscribe to HBO. By contrast, he reckons, there are only about 3m households with broadband connections and reasonable amounts of money but no multichannel TV."

From http://www.economist.com/node/21526314.

But who for one second thinks that cable providers would drop HBO if they started going around them?

HBO has what cable companies need. The companies simply can't afford to cut them off.

HBO should call their bluff, honestly.

  Current HBO subscribers = 28M
  Revenue per subscriber  = $5

  Households that can support HBO Go = 5M
  Revenue per subscriber = $15
  Assume 100% of eligible households subscribe.

  (28M * -5 * x%) + (3M * 15 * 100%) = y
  x = 32.14%

For y to be positive (net gain for HBO), the chance that cable companies drop HBO needs to be less than 32%.

If we assume HBO Go adoption rates are the same as cable subscribers (26.6%), that means 800k subscribers.

  (28M * -5 * x%) + (800k * 15 * 100%) = y
  x = 8.57%

For HBO to have a net gain, the chance that cable companies drop HBO needs to be less than 8.5%.

Another way to put it, in order to risk $140M to gain $12M you need to be more than 91% sure.

It's worse since HBO's subscriber fee is closer to $8 per user per month. It's the most expensive cable channel on a per user fee basis. ESPN is around $4 per user.

The cable companies need HBO less than HBO needs cable. Without cable distribution, HBO is dead. Cable without HBO is still cable, though; 75% of their subscribers don't get it, and I'm sure a pretty small percentage of the ones who do would drop cable altogether in response.

It's usually unwise to start a fight you can't win.

Your 4th paragraph needs to be your first. The issue here is that HBO still (thinks they) needs big cable, and aren't willing to piss off cable distributors to offer a purely digital delivery. Why wouldn't they want to cut out the middle man financially? Current distribution systems like Hulu and Netflix already prove such a tactic is possible.

HBO made about $4 billion in 2011 from subscriber revenue. The company is circa 40 years old. If you are an executive at a company that size and age, one of your primary jobs is to not fuck anything up.

Currently the upside to directly delivery is small; there just aren't that many people who have the hardware, bandwidth, and inclination to buy shows online. Certainly nothing like the 28 million subscribers they currently have.

There is no serious incentive for them to be a pioneer in this. Amazon, Apple, and Netflix are doing a fine job of figuring out what a la carte TV show delivery will eventually mean. When the market is big enough to make it worth getting in a fight with the cable monopolies, I'm sure HBO will do it. But for now, they can let other people take the risk.

This. For all the hemming and hawing that is done about *AA's and digital delivery, it's got to make sense compared to their current budgets. Most astute people can see the ship leaving the harbor in terms of what the future looks like, but when your revenue is measured in billions, it's easier to just let things shake out and then see who wins than it is to put it on the line and potentially get burned betting the wrong way.

edit: I don't necessarily believe in this as a sound way of doing business, but I understand why they'd think this way.

And in the meantime, HBO Go gives them a great opportunity to learn how to build a great service, so that once it makes sense to fight with the cable companies, they already have a great, mature product.

It's not an either/or proposition, HBO can allow streaming and still be friends with the cable companies. NBC is one of the big backers of Hulu and the cable companies still deal with NBC.

Do the cable companies deal with NBC? I thought they only dealt with local broadcast affiliates. But I confess I haven't had cable in a long time.

Regardless, premium content like HBO is different than broadcast television. The cable companies never had US exclusives to Saturday Night Live. But they do for Game of Thrones, and I doubt they'll give that up willingly. Remember: they're monopolists, and to a monopolist there's no such thing as fair competition.

Comcast owns NBC now. Of course, they're probably required to keep playing ball with Hulu for a while to appease congress and the FCC.

Exactly, their business model is to drive Cable Channel subscription, which I gather is way more lucrative revenue stream than getting a slice of a bundled internet service like Netflix, or directly selling episodes at the going rate (already comparatively higher price) of iTunes.

Even their DVD sales of Game of Thrones occur until 1 month right before the 2nd tv season begins. All the more to goose interest in the show and channel subscription....

> Certainly nothing like the 28 million subscribers they currently have.

Netflix alone had over 23 million streaming subscribers at the end of Q4. I'd say your instincts as to the market potential are quite underwhelming.

Sure, and that's a distribution network they've spent 14 years building. And they have way, way, way more content than HBO does. And those people are all on an easy-peasy all-you-can-eat plan; they are not buying individual shows. And HBO subscribers currently pay an average of something like $12 per month versus $8 for all of Netflix.

To me, that says that HBO would be idiots to fuck up their current cable relationships in hopes of building their own direct-distribution product. For now they can happily continue to sell the downloadable content to Amazon at the same time they release the DVDs.

Kodak didn't want to tick off their retail distributors to offer serious digital image processing. Look where it got them.

The problem for both is/was the jump from middleman-controlled to direct-to-customer involves a huge backlash in the process. The middleman will have to follow thru on the threat to drop distribution completely, at a time that direct customer contact is growing but still inadequate to make up that loss. Cutting out the middleman means a big hole that takes time to fill; it's killing the cash cow then waiting for the calf to mature.

Between "Breaking Bad", "Mad Men", "The Killing", "Walking Dead" and "Hell on Wheels" -- if I could JUST buy AMC for cable, I probably would.

I used to love HBO, but they've been stagnant lately (in my opinion.) "Luck" is already cancelled. Though I had high hopes for it being the harbinger of HBO's return, I think the last great show they produced was "Carnivale".

Thanks for bringing up iTunes, as I've been having a hard time catching up on AMC shows I missed, and didn't know they had the inventory anywhere.

I bought a season 1 of The Walking Dead on iTunes, and found it suboptimal. It kept automatically trying to download the normal version, HD version, and each "behind the scenes" episode for each episode. All I want is the HD version! This was annoying enough to me to go back to just pirating episodes for season 2. If this experience has changed I might reconsider.

Pretty sure you can just select which ones you want in the options.

I think HBO have made some fantastic shows, Band of Brothers is one of my all time favourite series. I'm in the UK so not experience the restrictions that you guys in the states are facing. I'll tell you what is really annoying though is when they post a video on Facebook and then it's location restricted. This is not just HBO shows, still annoying as hell, particularly when it's just an interview of one of the shows actors or something. Seriously people, you have fans all over the world, these marketing channels need to reflect these global views!

The location restrictions are the same when I try to view something on BBC or Sky websites. They are just interviews or report snippets but it's restricted for viewing in the UK only.

I notice you mentioned Oz, The Sopranos, and The Wire, but not Rome. If you haven't seen Rome... I highly recommend it. http://en.wikipedia.org/wiki/Rome_(TV_series)

It was a big-budget affair, too.

Here's something that I learned working for a cable company: HBO doesn't really know who their customers are! Or to put it another way: HBO's real customers are the cable companies. As far as I can tell, HBO never deals with subscriber data. That's why you can't sign up with them directly.

I know this because I know how HBO GO works at my company. The subscriber visits HBO's site, but then they have to tell HBO which cable company they have. Then HBO redirects them to that company's website! After they verify with the cable company that they are an HBO subscriber, the cable company redirects the user back to HBO with a "subscriber" token.

Don't forget Game of Thrones which is superb.