HBO May Make The Jump From Cable/Satellite Model To Direct-to-Consumer Model

Time Warner CEO Jeff Bewkes said there is a shift in how the cable TV is sold. HBO, which is a part of the Time Warner family, is looking at moving away from satellite and cable companies to become a part of the direct-to consumer model.  According to Bewkes this broadband-only option didn’t present itself until now, which is why the company never thought to consider it before. He said the option has grown significantly. While no official announcement was made, Bewkes was a bit optimistic about it, which could give cable operators some reason to worry and people who let go of pay-TV a reason to have faith.

What Would It Be Like For HBO

HBO, if it made this move from one model to the other, would find they no longer have a middleman and become a competitor to Netflix. For HBO, the news is good because of the already developed Go app.

Reed Hastings, CEO of Netflix, said HBO was the only competitor on his radar. Netflix has brought its total subscriptions to 50 million, with another four million expected in the next quarter. The company also surpassed HBO in revenue for total subscriptions last month. Although Hastings talks about competing with HBO, both companies are barely doing that. Netflix is a direct-to consumer business while HBO is still selling through cable companies.

Although HBO has a 114 million subscriber base, its revenue is less because it must share it with the distributors. Should HBO eliminate its middleman, it won’t have to deal with the costs. It will have an array of other problems to contend with – billing, content delivery, customer service and marketing, which is not on their plate now.

The company, for a trial, has sold HBO with a thin basic cable plan that includes local channels and broadband Internet, which is found on Comcast and runs around $50 a month. If HBO has no Internet, it can’t succeed. And, once it starts getting past cable, it’s got two possible risks:

  • It could anger its partners who get $8 a month per subscriber and use the channel to encourage people to bundle cable TV.
  • It could have a pricing issue. If the company charges $10 a month, it would make more money per customer than currently, and angering DirecTV, Comcast and others.

Should HBO makes this move, it could lead to other channels following suit, unraveling the cable/satellite bundle and giving consumers a new option in attaining programming.

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