HBO aren't idiots. They've done the math and for now they've found it IS more profitable for them to only allow you to get their content with a cable subscription. Why does when it come to big media everyone thinks the companies are run by 12 year old morons when they don't agree with their policies?
How do you do the math when one of the unaccounted variables is the potential conversion rate of people who would pay for a HBO streaming service but won't pay for it if it's chained to a pay TV subscription, and so they pirate instead?
Piracy thwarts everything HBO has to track and measure ratings, so how could they possibly "do the math" and figure out the size, demographics, and potential conversion rate of this group?
I think it's more chaining HBO to a cable subscription is a known quantity, and venturing out into a pure streaming service is the great unknown.
so how could they possibly "do the math" and figure out the size, demographics, and potential conversion rate of this group?
Honestly its not that hard. HBO just has to look at how offering HBO GO as a standalone service would cost them from whatever punishment would be handed down from the large cable operators. This is likely a very known quantity (We'll call it X). Then they just need to do a little market research to know how many people are 1. not buying cable. 2. Would by HBO Go as a standalone service (We'll call this Y) if Y is greater then X then it would make sense. The Piracy conversion angle is pretty meaningless since its a subset of the actual target market.
I have no idea the actual numbers but having worked in the industry for sometime I'm guessing that Y is pretty much a rounding error compared to X.
If we're to assume their paranoia about piracy is because they've done the math, then clearly HBO considers it significant.
I don't think they've done the math, because I think "market research" into the underground world of private torrent trackers is, uhh, a lot harder than you seem to think it is, trust me. If HBO were running ads on a site like TorrentFreak to take a survey, then perhaps I'd think they're actually doing their due diligence in this area, but they're not.
I'll offer an alternative hypothesis (blowhard: I worked in digital video distribution for a paytv software company for 4 years)
HBO is clinging to their legacy business model. The direct Internet streaming market is untrusted and scary. They're afraid to even attempt to cross the bridge.
They have consultants brought in who do this for a living. I don't know the specifics but, at a high level, they will introduce a range of possible values of people who would switch and the correlated range of losses that would inflict. They get a recommendation based on a number of other variables which tightens the range and have to make a judgment call. This is what they decided.
Maybe the folks at HBO are brilliant; maybe they aren't. That's besides the point.
The point is that companies like HBO are probably leaving money on the table. There are a lot of folks who are willing to pay to watch Game of Thrones, assuming that they could pay a couple bucks to download (not stream) a high-quality 720p/1080p file around the same time the show airs on HBO. But HBO has (apparently) decided that's not in their best interest, instead only providing two options:
1. pay for an HBO subscription
2. wait for disc-based release (DVD/Blu-ray)
For folks who have cut the cable/satellite cord and who don't want to wait for months, neither option works, so they pursue the only option left.
Maybe the folks at HBO aren't idiots, but then again they haven't exactly experimented with a different model, now have they? They assume they make more money with the current legacy model, but as Louis C.K. discovered, I'd wager HBO would actually make more money if they allowed folks to buy downloadable high-quality .mp4 files at the same time the show airs. If they ever decide to try that model, then -- and only then -- can you or HBO claim they've done the math.
It's not necessarily true that HBO is leaving money on the table. It could be that having a streaming service is against some contract term they have with the cable companies, and having one would lose them $x per customer. That amount could be less than what they've determined they could make from streaming. In that case, while they aren't taking your money, they are still maximizing their income by doing so. It's the demand curve in play. If 200 people are willing to pay $50 for something, and 50 more people are only willing to pay $25, then it makes sense to sell it for $50, since that makes $10000, rather than $25 since that makes $6250. In the second case, more people enjoy it (all 250), but the company makes less money. I'd highly suspect this is wrong though, given what Valve has demonstrated with price levels and video games.
Wait a minute. Did you or any of the responses to you actually read the article? No where does it mention one word about where they are making their content available.
The point of the article is that they are employing new DRM that is locking out paying cable subscribers. Furthermore this does not affect pirates because all it takes is one guy to crack the DRM and seed the torrent and it's game over. The effect of this is to promote piracy not to suppress it, and I challenge anyone to provide any credible evidence otherwise.
Cable/satellite is basically the sales & promotion department of HBO. Providers give away months of free HBO at their own expense. They have sales & customer service reps up selling HBO aggressively. Providers do direct mailings, billboards, etc to promote HBO. Why would they give this up? They're going to use the same strategy to push HBO GO via cable/telco video providers.
When HBO finally does make the shift to a standalone IP service it's going to look a lot more like Netflix than the iTunes Store. HBO doesn't want to sell you a couple episodes or even an entire series. They want to sell you the entire HBO service every single month. They will continue to stagger their original programing so you are enticed to keep the service instead of canceling after your favorite show is done for the season. They will mix in older catalog titles with newer titles to keep programming costs under control. They will continue using the HBO service's popularity as a platform for launching new original programming.
The fact that no one else has been able to pull off the HBO model via IP yet is a pretty good indication that HBO has time to gracefully make the shift to IP on their own terms. Netflix is trying but they don't have the original programming yet and that's a huge part of HBO's success.
They've done the math and for now they've found it IS more profitable for them to only allow you to get their content with a cable subscription.
I doubt that. Rather, I bet they've made a conscious choice to only be a content provider, not a content distributor. That's a fundamental business change. I say this because if HBO decided to make the change, and enabled, say, a $10 online, streaming subscription, I think they'd make more money than they do now. But that would likely upset their current deals with the cable companies, and it would be a fundamental business model change.
I say this because if HBO decided to make the change, and enabled, say, a $10 online, streaming subscription, I think they'd make more money than they do now.
They don't think so. And they have the internal numbers to back up their decision. HBO is a very smart and well run company, and they make buckets and buckets of money from their deals with the cable companies.
You (and I) would love to be able to buy access to their content without paying Comcast (or DirecTV &c.) but the number of people holding that position is VASTLY OUTNUMBERED by the number of people willing and able to pay $40/mo or whatever on top of what is considered a utility service. That's not going to change fast, and there's no point for HBO to get those arrows in their back when Apple/Amazon/Netflix are charging ahead regardless.
Certainly possible that they would make more money, but I doubt it. Doing some (very) rough math, HBO has about 28M subscribers. Cable customers pay $18 bucks a month for HBO, of which HBO usually gets 50%. So an overnight change in the business model would require 28M subscribers at about $9 / month.
Just as a point of comparison, Netflix, with a much larger catalog of shows and movies, has something of the order of 25M subscribers
Obviously an overnight change would not happen, there would be a transition over several years and the streaming subscribers may well be supplementary to existing subscribers. But during the transition, cable company partnerships would be strained and existing revenue would be at risk. Not to mention the capital investment required to provide the content reliably, dealing with the multitude of streaming devices, providing customer support, marketing the product directly to consumers and all the other things that cable companies take care of (albeit badly). Netflix is making bold changes in its business model and it's certainly not an easy thing to do.
Ultimately, HBO's core competency is in creating amazing content. It's arguable if they'd make more money by changing their business model, but I'd wager that HBO execs simply do not want to have to deal with all the distractions from their core mission that would occur by doing so.
You're assuming that people would drop cable and buy through streaming as opposed to maintaining the same 28M subscribers and ADD additional streaming customers. If they charged $9/mn, I have a hard time seeing how that could be a net loss. Even if some subscribers switch from cable to streaming, they wouldn't lose revenue.
The only way they could lose revenue is if current subscribers dropped cable and didn't go with streaming, which seems unlikely to me.
You're not thinking of this from the perspective of a cable company.
Cable companies are already losing subscribers. They will do everything they can to discourage people from defecting to broadband downloads. One of the most obvious things they can do is to have exclusive content. Which means they would be smart to put immense pressure on HBO to stay out of the distribution business.
Depends to some extent on what the cable companies do. If they lose their exclusive relationship with HBO, they might move towards giving HBO a worse deal, in terms of bundling and revenue share, which could be a significant hit, at least near-term.
* I think they'd make more money than they do now. But that would likely upset their current deals with the cable companies, and it would be a fundamental business model change.*
They've done the math, and they wouldn't make more money than they do now. That's why they haven't done it yet.
It's not just pure subscription numbers that matter -- it's the millions in free promotion that cable/satellite companies provide that must also be factored into the cost equation, as well as the millions in costs they would incur by expanding their streaming options.
Of course HBO management are not idiots. They are actually doing the best to increase profit of the company (in short term).
However, I think the theme here is that cable subscription model is getting disrupted: more and more people will not have cable and will relay on other ways to get viewing content. It might be too late for them to transition to brave new world if they don't start now.
How do you imagine HBO getting screwed in the long run? As far as I can see, there will be distributors in any brave new world. Amazon, Apple, Netflix, and Hulu are going that way. As long as HBO keeps making quality content, distributors will be lining up to bid on it.
You are 100% right: I'm just saying their their business and distribution model is based on cable subscription. And that we don't know whether their math (and content they produce) will work if they switch to different distribution model.
My assumption is that with changing distribution model they also need to change what kind of content they are producing.
Anyway, I'm concern that death of cable will also mean death of HBO and their great content: as revenue from cable subscription start drying down, the revenue from other distribution channels will be too weak to replace it and then the death spiral starts....
I agree. However, they may be giving some other content-producing company a chance to grow, or pushing other companies (e.g., Netflix) towards producing content of their own.
What I wonder about is what is happening to the margins of content-production. HBO has been living on fat margins, and I can see why they wouldn't want to give that up. But the increasing numbers of distribution channels seem likely to put pressure on those margins -- more content producers have a chance to get in the game.
I'm glad you had the balls to say this. It really stumps me when I see everyone basically saying they know better than HBO how to make money. I don't doubt the logic and stats behind everyone's reasoning but I do doubt that they know something HBO doesn't.
HBO I'm sure has more people working on how to make the company profitable than there are comments in this discussion. There's some entitlement floating around here masked as "better ideas". I have no doubt that HBO wants to make paying for their content as easy as possible but...
* they might have done the math and found this way to be more profitable, losses to piracy be damned
* it takes a lot of different entities to make a show like Game of Thromes and you better believe that there are pre-existing contracts galore. These pre-existing agreements may be what's keeping the situation as it is now
If scenario 1 is correct then that's just tough for us. We'll have to wait or pirate. If we pirate then HBO probably doesn't care anyway or they wouldn't have made watching GoT so damn hard.
If scenario 2 is correct then we're placing blame and frustration in the wrong place. At the same time this scenario can vindicate popular opinion around here too.
Whatever the case may be, I sincerely doubt HBO doesn't know what they're doing. They absolutely cannot be so incompetent as to not understand that making it impossible to pay for the show will drive people to piracy. As for inconveniencing current customers, I want to give them the benefit of the doubt. Maybe they had a deal with Dish and Cable companies and expected all boxes to be replaced by the time they made this change in their broadcasting.
I could be wrong but if HBO truly doesn't get it my head might just explode.
I worked at Kodak. I was at the status meeting where they explained they didn't want to tick off film retailers - at which point it was obvious the company was doomed.
HBO is not in danger of being put out of business by their equivalent of the digital camera, is what I'm saying. (Piracy is not the digital camera of content; digital contracts didn't break contracts, promises, or the law).
But: I said it snippily, and ineffectively. I apologize.
HBO's equivalent of the digital camera is on-release video streaming. There's a lot of us who just don't & won't have "cable TV", and who are willing to shell out money for access to shows the day they're released. Beholden to the distributor/retailer, HBO isn't doing independent streaming and is releasing discs long after initial release. The public's transition to streaming video is catching on and accelerating, entrenched technologies can be replaced a whole lot faster that most expect, and faced with evaporating audiences the existing distributors will hold HBO to exclusivity contracts. Oh sure it's not the same thing, but I'm seeing & expecting strong parallels. HBO is not too big to fail.
Snippy happens, given a soundbite-oriented medium. No prob. You want room 12A, just along the corridor.
HBO's equivalent of the digital camera is on-release video streaming.
This is nonsense and a horrible analogy. HBO is perfectly suited for the the future you envision. They have a digital streaming infrastructure in place to make the transition they just don't yet have the business case.
The reason the analogy fails is because HBO isn't a medium. Its the content - ask Netflix how easy it is to make a living streaming mediocre video content. Switching to a different distribution mechanism is trivial but for now they're not going to cut off their nose to spite their face just because a tiny subset of subscribers are moving away from cable.
>They have a digital streaming infrastructure in place to make the transition they just don't yet have the business case.
I think that's the biggest part that goes missing in these discussions. Yeah, it's annoying that the moment that they require you to go through a tv provider, but I can see why they wouldn't want to alienate a large revenue source right now.
That said, it's pretty significant that they're building up their streaming infrastructure in the first place. The day will come when cable providers aren't worth cozying up to anymore, and it might even be sooner than HBO thinks. However, if they have everything in place it's going to be a lot easier to push out an update allowing web only customers than it would be to build their streaming service from scratch.
It remains to be seen, of course, how they will make that transition. It's arguable, though, that they aren't nearly as unprepared as some people are making them out to be.
Kodak had a good digital camera plan in place. They just didn't take it seriously and didn't move fast enough when a tiny subset of photographers were moving away from film. They were beholden to distributors, not consumers, of their product.
Or it could be a lot of both. HBO certainly must see the writing on the wall for cable, but it would seem they're not being as aggressive as, say, Netflix in deploying on-demand content. But they are positioning themselves. Why else provide online content only as a value-added proposition to full-price cable subscribers?
HBO is obviously making moves towards this transition, but the numbers probably just aren't there yet to justify taking the full plunge. It looks to me like they're hedging their bets. Netflix's biggest challenge is content, right? When the time comes, I don't think that's going to be a problem for HBO.
Or, maybe their C-levels are just bailing water on the old model. But I kinda doubt it.
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