(No lengthy discussion of HBO would be complete without listening to the opening intro music of every single HBO program so go ahead and indulge for a 8 seconds above and get ready for this discussion)
Throughout this class, my beat has been focused around television and how digital disruption is changing the way TV is made, exhibited, and consumed. The topic of this post will be analyzing the move by HBO Entertainment to offer a subscription offer that only includes online services, such as the popular HBO GO. This would be for consumers who do not wish to have a cable subscription (to “cut the cord” as they say). Some people think it may be the next step for television, as less people watch their television on an actual TV. I will now take a closer look at HBO’s plan and what this means for the future of the television industry.
HBO was the first subscription cable television channel to become successful. Starting in the 1970s, HBO’s original model was to buy the distribution rights of older films that they could play for customers for a subscription charge of $6/month. Many people feared that cable channels would bring an end to broadcast dominance, a fear that still rings true today. In the late 1970s, they started making their first original programming. As the infrastructure grew, they got access to better commercial films and their audience expanded. Today, “Home Box Office Inc. (HBO) is the largest pay-TV channel in the United States, with a subscriber base of about 33 million and earnings of approximately $400 million. As a subsidiary of Time Warner Entertainment Co., L.P., 63 percent of which is owned by Time Warner Inc” (source).
Below you can see all the different ways that HBO subscribers can currently use to enjoy HBO programming in 2014:
Subscribers originally panicked when HBO demanded $8 extra a month to pay for their service online, on the site HBO GO. Why would you pay more to have the programming on a smaller screen when you can have it on your television? But similar to HBO On Demand, HBO GO lets users decide when they want to watch a program. The schedule no longer mattered because shows could be watched when the customer decided to. Customers can also repeatedly watch an episode they enjoy or easily pause and rewind key moments.
Above is a recent ad for HBO GO, which is attempting to appeal to the younger audience. The big point of the campaign was that HBO knows some of its content (gratuitous sex scenes, language, adult themes, etc.) are not things teens would enjoy watching with their parents in the room. With HBO GO, they can watch the programming on any laptop or mobile device, away from the eyes of their parents.
In addition, HBO GO offers customers access to the channel’s entire backlog. It is just as easy to watch new shows like Last Week Tonight with John Oliver and Looking as it is to find old HBO classics like The Sopranos, Sex & the City, and The Wire. This is a no-brainer win for HBO because they have already paid for these productions in years past. By streaming everything online, they give customers more product and incentive to keep their subscriptions without having to cover any new costs.
Given all of these advantages, people have been demanding a service without cable for quite some time. In 2013, blogger Jake Caputo created the site Take My Money, HBO!, where he tried to get HBO’s attention and asked others how much they would be willing to pay for the subscription. He then tweeted this information at the company.
Well, they succeeded. The new proposed subscription would include access to HBO GO and nothing else. Subscribers could have access to all new and archival programming from HBO for a small monthly fee without ever having to deal with cable.
It is important to note that this new subscription model is not meant to replace HBO’s television model. Instead, this is for the tech-savvy customer who does not currently have or have future desire to pay for a cable subscription, but still wants access to HBO’s programming. This is mainly younger people, who get their television from sites like HULU Plus, Amazon Prime, and Netflix, in addition to pirating shows illegally off the Internet (we’ve all done it before). In fact, HBO’s smash hit Game of Thrones currently holds the title of most pirated show on the Internet as the season four finale was reported downloaded 1.5 million times within the first 12 hours of it being released on HBO. But HBO has not seemed to mind in the past about pirating. In fact, they seem to think it is a good thing. HBO CEO Jeff Bewkes has stated that:
“Basically, we’ve been dealing with this issue for years with HBO, literally 20, 30 years, where people have always been running wires down on the back of apartment buildings and sharing with their neighbors,” he said. “Our experience is, it all leads to more penetration, more paying subs, more health for HBO, less reliance on having to do paid advertising… If you go around the world, I think you’re right, Game of Thrones is the most pirated show in the world. Well, you know, that’s better than an Emmy” (source).
So why open this new subscription option in the first place? Apparently in recent months, HBO has come to realize all the new profit and open markets they could be tapping with this subscription, as there are currently 80 million homes in the US without HBO.
There is still no official word on how much the service will cost subscribers but most estimates put it at about $15. The average cable cost for an HBO subscription is at about $20, which is a charge added on top of the regular cable bill.
Given that most college students I know do not seem to pay for cable subscriptions here at school, I was curious to hear what their thoughts were on the plan. Below is a survey conducted over the last week with 20 different seniors here at the University of Michigan:
Do you currently have access to an HBO subscription?
Would you consider paying a small monthly fee for access to HBO Go online?
Answer: 40% said “Yes”
Would you ever consider completely “cutting the cord” and going cable and broadcast television free?
These findings surprised me slightly. I did not expect so many students to be willing to pay for an online subscription, especially when illegal downloads are so easily accessible. I was also surprised at how many students had access to an HBO account, even though no one that I talked to paid for cable television. Most people used their parent’s account here at school.
To find out more information about how students might feel about this new subscription, I decided to create another radio show where I interviewed two seniors here at Umich live “on-air”. Check out the show below:
It is clear that there is a market and a demand for this subscription. It is not surprising then that in the last few weeks, both CBS and Starz have announced plans to create online subscription models separate from their cable packages. Netflix CEO Reed Hastings stated last month:
“Well everything we’re seeing is completely consistent with the whole society — not only the U.S. but all over the world — moving toward Internet video and Internet television. We saw Starz a week ago announce that they were doing an Internet video service, now we have HBO. Perhaps there will be other providers in the coming weeks. All the big networks are moving to Internet video. It’s just becoming a very large opportunity” (source).
I personally believe that online television will never completely eclipse the use of television sets in the home. However, it is evident that legacy broadcasters and even regular cable channels will have to adapt to Internet culture if they wish to stay relevant and in control of the market. The industry is rapidly changing every day and there is always another company attempting something innovative and new. HBO has demonstrated in the past that they are up for the challenge. I look forward to see where the television industry goes next.