[opendtv] HBO Having Trouble Luring Cable-TV Operators to Standalone Service - TheStreet
- From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Mon, 2 Feb 2015 20:26:09 -0500
http://www.thestreet.com/story/13031053/1/hbo-having-trouble-luring-cable-tv-operators-to-standalone-service.html?puc=TSMKTWATCH&cm_ven=TSMKTWATCH
HBO Having Trouble Luring Cable-TV Operators to Standalone Service
NEW YORK (TheStreet) -- Time Warner's Home Box Office may not get help from it
cable-TV partners for the launch of its much-anticipated Internet-based video
streaming service later this year, hampering the channel's rollout.
If HBO is unable to convince cable-TV operators to help market the service, the
network could be thwarted in its efforts to attract younger viewers in its
ongoing battle with Netflix.
The largest U.S. cable-TV operators are concerned that consumers will drop
their pay-TV subscriptions altogether in favor of lower-priced online services
such as the one Time Warner has planned for HBO, the most popular premium
pay-TV channel. HBO is betting that its new online offering can attract some of
the 80 million pay-TV users who don't subscribe to a pay-TV channel as well as
some of the roughly 10 million households with a broadband connection that
don't get any pay-TV service.
Rebuffed by cable-TV operators to market the new online offering, Time Warner
has been quietly sounding out non-cable-TV partners to distribute its
standalone version, according to a person with knowledge of the talks. HBO has
received several expressions of interest, including by some of the online
distributors who already distribute HBO Go, a version of the TV channel that
requires a cable or satellite subscription.
HBO Go has more than 9 million registered users in the U.S., Time Warner says
on its website. Among the online non-pay TV distributors that offer HBO Go are
Apple's AppleTV, iPad and iPhone; Roku; Amazon's Kindle Fire; Microsoft's Xbox3
and Sony's PlayStation 3.
HBO isn't commenting on its rollout plans or partners.
The decision to market the new service will ultimately depend on how the new
revenue is divided. Non-cable-TV operators would pay HBO as much as 70% of the
revenue from its online-only service, the industry standard for content sold
online, said a person with knowledge of the plans. Cable operators, conversely,
retain about half of the subscriber fees for HBO. As such, pay-TV operators are
refusing to agree to a lower revenue split for HBO online, said an executive
with knowledge of those talks.
HBO's new online service will likely suffer without cable partners to help
promote it. The 10 largest cable operators provided broadband services to 51.2
million subscribers at the end of the third quarter of 2014, according to data
consultants Leichtman Research Group. That's more than half the U.S. broadband
market. Those companies have marketing clout and access to the subscribers that
HBO could bolster Time Warner's introduction a highest-profile new product in
years.
HBO, which has not said when it will launch its new online service, likely
won't be able to offer the service directly to consumers. Its affiliate
agreements with cable and satellite operators restricts HBO from selling
subscriptions directly to consumers, according to people with knowledge of
those agreements. Cable and satellite operators retain that right.
Though HBO CEO Richard Plepler has repeatedly insisted the new online offering
won't cannibalize pay-TV providers, there is mounting evidence that the
operators' concerns may be warranted. A January study by Park Associates of
10,000 U.S. broadband households found that 17% are likely to sign up for an
online service from HBO, including about 8% who would likely "cut the cord" and
discontinue their cable TV service.
Since unveiling its plans in October, HBO has said it planned to launch its new
online service with the help of pay-TV operators that pay Time Warner most of
the $4.5 billion in subscriber fees that it collected over the past four
quarters.
"We will work with our current partners," HBO chairman and CEO Richard Plepler
told an investor conference in November. "And we will explore models with new
partners. All in, there are 80 million homes that do not have HBO and we will
use all means at our disposal to go after them."
Plepler explained that he told cable operator that "there's gold in the hills,"
and that they should work together to attract new customers -- folks who don't
subscribe to premium channels or choose not to get pay-TV service but do pay
for broadband. The new online HBO service, Plepler said, wouldn't cannibalize
cable operators' existing deals with HBO subscribers.
"This isn't either/or," Plepler said. "It's additive."
Executives at HBO hope pay-TV operators will eventually join their efforts to
market the new service, said a person with knowledge of HBO's thinking --
especially if HBO's online version becomes a hit for the broadband services
that offer it.
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