There’s been a lot of discussion over the past couple of days about why HBO hasn’t made its content more widely available to non-cable subscribers. While I understand individual consumers are frustrated, I think we need to reckon with the fact that this is not a problem of a single premium network. It’s a limitation of an ecosystem that also happens to have produced the kind of environment where HBO can make the content that makes it so desirable.
Erik Kain started the current wave of this, first blaming HBO for piracy, then, arguing that HBO should offer HBO GO as a standalone service and that the company would make more from those subscriptions than from its current arrangement from cable companies, and eventually backing off for some of the reasons I’ll articulate. But it’s important to reiterate that a stand-alone service is not a minor change . There are major forces at work here, and both HBO and we would do well to be attentive to them.
First, I agree with Yglesias that commentators, particularly those of us who cover entertainment technology, tend to dramatically overrate the extent to which cord-cutting is actually happening and to which consumers want to and are dropping their cable in favor of streaming services. Even if broadband gets cheaper and broadband adoption gets more serious, that doesn’t mean that people are going to prefer streaming services to cable. As I wrote earlier this week, people are dropping cable subscriptions, but not yet in a way that indicates a cultural shift rather than a tough economy. The cable companies aren’t wilfully ignoring overwhelmingly compelling evidence. They’re waiting out a trend to see if it’s real. And until sports in particular, a much bigger driver of cable subscriptions than the premium networks, get unbundled from cable, I’m just not sure we’re going to see huge, permanent accelerations in this trend, particularly if use of streaming services like Hulu gets tied to authentication of a cable subscription or a tacked-on fee.
Second, waiting that out isn’t evidence of idiocy or a desire to do harm to consumers (though it’s a mystery to me why folks who consume content assume entertainment companies’ main purpose is to be nice to them rather than to make money). HBO and other premium cable channels have a very solid and established business model here. Cable subscriptions overall may be dropping, but HBO added 190,000 subscribers in the fourth quarter of last year, the biggest growth the network’s experienced since 2006. Folks may not like paying for bundled cable, but there isn’t actually compelling evidence that HBO in particular rather than cable companies in general should be worried about cord cutting.
And though Erik suggested that it would be easy for HBO to make up lost revenue by charging more for HBO subscriptions, I think he dramatically understated the difficulty and unpredictability of that move. It’s not just that “HBO has deals with cable companies that may make this move difficult, and quite possibly very expensive.” It’s that there is no way the cable companies would let this go quietly. At all. As Todd VanDerWerff put it:
If the network does this, it will be seen as declaring war on the very providers who keep it coming into people’s homes. Even though it seems, to a generation raised on the Internet, like everybody watches stuff on the Internet all of the time, the vast majority of Americans still consume their entertainment on TV. Without the cable companies beaming HBO into those people’s homes, the network loses subscriber fees, which robs it of the ability to program anything beyond cheap movies.
It’s really nice to believe that a new generation of online only subscribers would rise up to take their places, and do so at a higher price than they pay for HBO through. But that’s pure speculation at this point, in part because no channel has a stand-alone streaming pay subscription service that HBO could use as a benchmark. Netflix has 21.67 million streaming subscribers (HBO has more than 28 million subscribers), but it’s not clear yet that the streaming part of the company is going to be profitable long-term and at the current price point. There’s nothing wrong with waiting to see either if cord cutting materializes OR if streaming proves a viable stand-alone business.
And Netflix, unlike HBO, leases its content rather than making it, a much less expensive proposition. An HBO stand-alone service would have a smaller library of content, and would have to be more expensive than Netflix. If cable companies retaliated to a stand-alone HBO GO subscription service by throwing HBO off their rosters, HBO might have to charge considerably more than it does currently to make up for the fees it would lose, and the subscribers who would inevitably not migrate to a streaming service. Any transition involves lost customers, particularly one that requires people to either buy new streaming devices or broadband services (and I’m not even getting into net neutrality issues here: the cable companies could also penalize HBO for spinning out HBO GO by making their own services not count under broadband data caps, or the administrative costs HBO might have to pick up if cable cut ties) or reconfigure their remotes.
And given how much time tech pundits have spent telling the world that piracy doesn’t really impact the industry because most downloaders aren’t actually people who would ever pay for content, HBO can be excused for not seeing the people who are going elsewhere for content now as true potential subscribers.
Under these circumstances, the uncertainties to HBO of offering a stand-alone alternative to cable are much larger and potentially more risky than making a fundamental change to its business model are much larger and clearer than the posited advantages. No one has ever done this before. Ever. It’s not proof that HBO is ostritching or stupid that they are hesitant to move forward under these circumstances: they just don’t want to make a move that might gut their ability to keep turning out very, very expensive shows like Game of Thrones*. And it’s not like HBO isn’t looking around for data. The network made some episodes of Girls and Veep available for non-HBO subscribers. And in Australia, it’s testing making Game of Thrones episodes for sale through iTunes as they’re broadcast. These are important experiments, and data from them will undoubtedly go into HBO’s calculations as it plans for the future. But implying that HBO doesn’t know what it’s doing, or that it has some sort of anti-user agenda is silly. And suggesting that the network drastically change its business model — and that’s what this would be — without acknowledging how much that would change what makes HBO attractive in the first place may be forward-looking, but that doesn’t mean it can’t be short-sighted.
*Taken a look at Netflix or Hulu’s original content recently?