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HBO GO Is Terrific; The Question is How Aggressively Will It Be Deployed Longer-Term?
I've been testing HBO GO for the last couple of weeks and my reaction is overwhelmingly positive. The service is easy to navigate and incredibly responsive. Importantly, the video quality (particularly in the iPad app) is top-notch - you'll quickly forget the video is actually being delivered over the Internet and a WiFi network). And with over 1,600 pieces of content, there's no shortage of what to watch. Though I'm not an HBO subscriber, I've watched a number of HBO programs on DVD over the years (e.g. Entourage, The Wire, The Sopranos) and so the ability to get both past seasons, as well as current season episodes, in one space is highly convenient.
Obviously I'm not alone in my reactions as there have been over 3 million downloads of HBO GO just since its May 2 official release. Considering HBO has 28 million US subscribers, that's an impressive penetration level (even more so because HBO doesn't yet have agreements for HBO GO with all pay-TV providers, so some HBO subscribers can't yet access the service).
For now HBO has positioned HBO GO as a value add for existing subscribers. That's a fine place to start, but as the video landscape becomes ever more competitive, it's hard to see how HBO will be content to deploy such as strong asset mainly in a defensive manner, and not be tempted to start using it more aggressively. If and when that happens, that would be a major change in the pay-TV model. Though I questioned HBO's future in "Could HBO Be the Next BLOCKBUSTER?" HBO GO creates scenarios for how the company thrive in the online video era.
In the "BLOCKBUSTER" post, my main concerns were that HBO doesn't have a direct-to-consumer play and that its positioning as a high-priced ($15-20/mo) service, sitting on top of an increasingly expensive basic pay-TV buy-through of $60 or more per month, disadvantages it when compared with cheaper alternatives like Netflix and Hulu, each for under $10/mo. HBO GO gives HBO the means to address both concerns, though doing so won't be easy.
As a first step, HBO could extend its existing model by partnering with non pay-TV operators (e.g. Apple, Google, Amazon, etc.) for extended distribution. In fact, the most compelling partner would be Netflix. No doubt some portion of Netflix's 23 million subscribers already also subscribe to HBO, but my guess is that many are like me who don't, opening up a whole new addressable universe. The issue here would be that HBO's current distribution partners would go ballistic out of fear that a Netflix-HBO partnership would incent cord-cutting, or at a minimum cord-shaving.
A more radical next phase for HBO would be to offer HBO GO direct to consumers. Admittedly that would be a big departure from its traditional model. But since HBO GO requires users to provide an email address, HBO is laying solid groundwork for going direct (certainly people getting hooked on HBO GO only improves HBO's hand). In addition, with arguably one of the strongest media brands in the world, plus a range of well-known original programs, HBO has still further momentum. Plus, the long-term economics are compelling - assuming HBO currently keeps about a third of the approximately $15/mo distributors charge, it could likely charge subscribers directly around $10/mo and possibly still generate equal or better margins.
Both of these steps would be very risky for HBO, putting its existing multi-billion dollar/year revenue model from pay-TV operators in peril. So the safe thing for HBO would be to just keep offering HBO GO as it does now, solely for authenticated pay-TV subscribers. But as the world moves ahead - and in particular as Netflix zooms past 25 million and eventually 30 and 40 million subscribers - while HBO's subscribers are flat to down, HBO will be at a bigger and bigger disadvantage.
In short, HBO GO is an asset with very high potential. How aggressively HBO decides to deploy it will determine a lot about what HBO looks like 5 years from now.
(Below is a short interview I did at the recent Cable Show with HBO SVP, Digital Platforms Alison Moore, who oversaw HBO GO's development)
Categories: Cable Networks, Devices
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