HBO Ignores Internet Geniuses, Sells More HBO
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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.
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.
EDIT: Okay, it's a lot more than four. But my point still stands: http://en.wikipedia.org/wiki/List_of_programs_broadcast_by_H...
Or, if you're like me and doesn't want to get basic cable, you can be patient and wait for internet delivery through iTunes or similar later.
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.)
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.
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.
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.
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.
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.
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.
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.
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?
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.
http://blog.nielsen.com/nielsenwire/media_entertainment/i-wa...
"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.)
Internet subscribers yes; TV, no:
"Comcast's video subscriber base continued to shrink, though at a slower rate than in recent quarters. It lost 176,000 subscribers during the period."
http://tv.yahoo.com/news/comcast-earnings-beat-street-intern...
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.
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?
Maybe I'm misunderstanding you but I have a Roku which I watch Netflix and HBO GO on. It cost $50 and connects via HDMI and Wi-Fi.
I think you may be overestimating the overhead costs for HBO deployment.
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.
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.
This is all free advertising 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.
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.
My way to help the producers of content is to buy DVD's, etc from their websites.
A lot of people are having trouble with the idea of what's best for HBO not aligning with their own self-interest.
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.
The streaming space may not be as profitable for HBO, but I don't think it is a problem that there aren't many of us that would want it standalone.
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.
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.
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?
My only peeve with the UI is that there isn't a "next episode" button when watching a series.
Data is not the plural of anecdote.
In this case the anecdote of, me and my circle are getting rid of cable, everyone must be.
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.
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.
I think the predictions of HBO's RIM-esque decline don't make sense, they know what they're doing.
Maybe that's because HBO isn't available any other way?
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).
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]
http://videonuze.com/article/video-interview-hbo-co-presiden...
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."
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.