HBO Cuts the Cord, Passes Go to Non-Cable Subscribers in Landmark Move

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HBO was founded by a cable operator, Charles Dolan, who came up with its iconic tagline, “It’s not television. It’s HBO.” With the launch of HBO Go for broadband and mobile to its pay TV customers, it added “It’s not any streaming service. It’s HBO Go” and “It’s HBO. Anywhere” to its marketing toolkit.

It’s been 42 years since HBO created Pay TV as a business and changed the distribution model for content worth paying for. Now it’s forsaking television altogether by offering HBO Go to anyone who wants to sign up—and not just as a free add-on to subscribers of its premium TV offering.

It’s an announcement that’s sure to make waves with the stakeholders who brought it to the dance—cable and satellite TV operators—as the premium programmer abandons them at that dance in response to the threat of Netflix.[more]

The so-called “over-the-top” or OTT a la carte subscription service (price and launch date TBA) will launch in 2015, in the US first before going international, where HBO is launching its TV Everywhere platform in Latin America and beyond.

“This will be transformative for our company,” stated HBO CEO Richard Plepler at today’s Time Warner Investors Day, where the news was announced, adding that HBO will “work with current partners and 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,” he said, referencing broadband-only homes as “a large and growing opportunity that should no longer be left untapped. It is time to remove all barriers to those who want HBO.” 

Its biggest business challenge: Netflix has surpassed HBO’s domestic footprint, even though HBO grew its subscriber base by 2 million last year. Hence the decision to go it alone, and to launch a major consumer branding campaign this month. As Home Media Magazine reports,

Beginning in the fourth quarter, HBO will embark on an aggressive marketing campaign, a multimedia PSA designed to highlight what the network brings to an increasingly crowded home entertainment landscape. “We think a lot of folks don’t really understand HBO. What does it include, everything from theatricals to HBO Go to original programming,” Time Warner CFO Howard Averill told an investor group Sept. 17 in Los Angeles describing the campaign. “It could really help.”

As TIME points out, cable operators saw this coming, adding that the inevitable standalone HBO Go offering “has ignited a debate among TV-industry insiders: Is this the beginning of the end for the traditional pay-TV model? If HBO goes the Netflix route, what’s to stop ESPN or Discovery or the Food Channel from following suit? And is this a nail in the coffin of TV Everywhere, the pay-TV industry’s online streaming collaboration that Bewkes himself has proudly backed?”

Last month, Time Warner CEO Jeff Bewkes signaled the idea was on the drawing boards. “We are seriously considering what is the best way to deal with broadband… The really good news is that we have viewers clamoring for HBO.” 

Already, a standalone HBO Go service has worked well, after initial hiccups, in Finland, Norway, Sweden and Denmark. And it’s certainly embracing streaming beyond its branded borders, including a free Foo Fighters concert on Facebook on Friday night to promote its new series with the band.

One area of concern for HBO Go is its vulnerability to ISP bottlenecks and bandwidth limits by ISPs, which led Netflix to negotiate better broadband carriage deals with Comcast and Verizon. And, there’s no word on what the service will actually be: will hit series like Game of Thrones run on a same-day or delayed basis? Will movies and TV shows be packaged at different access levels than the pay TV window?

With details still to come, Consumerist notes that “even a vague announcement is a significant shift for HBO, which as recently as last November was not particularly enthusiastic about reaching out to potential cord-cutters with an online-only offering, and didn’t think consumers would be interested either.”

And following the old adage to keep your friends close and your enemies even closer, Time Warner’s Investors Day brought another surprise: licensing Warner Bros.-owned Friends to Netflix in North America starting Jan. 1, as part of an announcement from its movie/TV studio that includes three LEGO movies in the next four years, a three-picture deal with Harry Potter author J.K. Rowling and “at least ten” superhero movies based on DC Entertainment properties including standalone Batman and Superman films.

Now HBO’s challenge is to maintain its founding ethos and premium positioning, while swimming with the sharks in the digital media stream of today where almost everything is available for the taking—one way or another. It’s a savvy, somewhat retro-fitted move for a media company that continues to define innovation, quality and differentiation. 

And in good news to the HBO side of the house, Netflix today reported weaker than expected subscriber growth numbers, prompting the company to comment with its quarterly earnings report:

“The competition will drive us both to be better. It was inevitable and sensible that they would eventually offer their service as a standalone application. Many people will subscribe to both Netflix and HBO since we have different shows, so we think it is likely we both prosper as consumers move to Internet TV.”

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