[opendtv] Re: Forbes: Cut The Cord? HBO Considers Selling Direct To Better Combat Netflix
- From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
- To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
- Date: Thu, 9 Oct 2014 10:18:16 -0400
On Oct 8, 2014, at 7:49 PM, Manfredi, Albert E <albert.e.manfredi@xxxxxxxxxx>
wrote:
> "Bewkes was talking about moving from selling HBO through cable and satellite
> companies to a direct-to-consumer model: 'The broadband-only opportunity up
> until now wasn't ... at the point where it would be smart to move the focus
> from one to the other.'"
>
> Translation: we are no longer dealing with the single content source monopoly
> of MVPDs today.
Not even close to an accurate translation. Try this:
HBO was conceived in a different era when MVPDs had the only viable pipe to
deliver a premium service like HBO. We optimized for that model and have
enjoyed incredible success. But the ability to put vast content libraries
online where subscribers can access this content on demand has fundamentally
changed the nature of a premium, commercial free content subscription service.
We have been tracking this technology transition - and the growth of Netflix -
and believe that it has matured sufficiently to consider fundamentally
reworking our business model to remain competitive.
> So yes, Netflix does compete with HBO. And even this implication to the
> contrary, below, is *not* based on the content they sell, but on the business
> models they use:
Duhhhhhhhh!
I've been saying this for weeks. For the service that Netflix and HBO offer,
the advantages of a server based web subscription portal are enormous.
BUT! Please do not confuse what is happening with HBO and Showtime, with the
bundle business model used by the MVPDs for hundreds of content channels.
> "... the two companies still rarely compete directly. The reason, of course,
> is that Netflix sells directly to consumers and HBO sells through cable
> companies (with the exception of the Nordic countries, where it has
> experimented with a direct model)."
This is absurd. It is OBVIOUS that they compete directly. The "rarely compete
directly" argument can be supported to a degree by the nature of the content
offers. HBO has a larger movie library and offers new movies that Netflix does
not. Netflix offers a larger
library of off-network TV shows. Both offer exclusive content designed to lure
subscribers to their services.
Bottom line, they are direct competitors.
>
> These next two quotes are about something Craig never mentions:
>
> "The net effect is that HBO's much larger customer base - more than 114
> million worldwide - brings in less revenue [than Netflix], because the booty
> is shared with distributors."
>
> "But it also reminds that HBO without internet is nowhere and Comcast is a
> partner in many ways. Once HBO starts skirting cable, it runs two very
> distinct risks. First, it will anger those partners, who like receiving about
> $8 per HBO subscriber each month and also using the popular channel to
> encourage people to buy bigger bundles of cable TV. Second, it has a pricing
> problem. If HBO charged $10, for example, it would likely make more than it
> currently does per customer. But that would surely infuriate Comcast, DirecTV
> and others who would not be undercut."
This is both good news and bad news for HBO. By providing it's MVPD partners
with a substantial cut of the monthly subscription, HBO does not need to deal
with billing, customers service, etc. The article notes that HBO will face
these costs if the move to the direct yo consumer model. But this still leaves
room for the OTT service to cut prices to the level the article suggests to
better compete with Netflix.
What is largely ignored here is that HBO can use BOTH business models for as
long as both remain viable. The HBO Go portal allows those who subscribe to the
HBO MVPD tier to access HBO content on demand, and on mobile screens. Adding a
lower priced Internet only service adds to the potential customer base; and
companies like Comcast and the other MVPDs that ALSO offer ISP service could
offer this new service, allowing HBO to avoid having to deal with billing and
customers service.
It is worth noting that Netflix is entering into agreements with MVPD services
to sell the subscription and offer Netflix via the cable STB.
> "HBO has always known the day was coming when it would have to emulate its
> upstart rival [Netflix], ..."
>
> Translation: milking the old model for all it's worth.
No. We must offer a comparable product to Netflix, even as we milk the old
model for all it's worth.
> Craig keeps insisting that the congloms want to stick with "the bundle." Then
> how do you parse all of these changes and impending changes, Craig?
Simple. We are talking about Apple and oranges. Completely different products
that employ different business models.
To be absolutely clear:
HBO is a premium, ad free content subscription service sold as an additional
tier by MVPD services. It has NOTHING to do with the extended basic program
bundle.
The only time that HBO offers exclusive live streams is for a handful of events
like boxing. They can still offer live streams when necessary via an Internet
portal.
The bundle is held together by a small percentage of channels that offer
exclusive live events that are in high demand. You can watch them via the cable
box, and now via the Internet with authentication.
Regards
Craig
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