HBO leaps into standalone OTT service, breaks the a la carte code

Time Warner investors were the first to hear the news from HBO Chairman and CEO Richard Plepler: The premium subscription service, which currently offers an authentication-only streaming service, HBO Go, to cable subscribers, will launch a standalone over-the-top service in the United States next year.

There are some 10 million broadband-enabled homes in the U.S., a number that is expected to continue growing. "That is a large and growing opportunity that should no longer be left untapped," said Plepler in a Wednesday morning investor meeting. "It is time to remove all barriers to those who want HBO."

HBO's move has the potential to blow apart the longstanding, unwritten code of cable: that you don't ever go a la carte. And it may add fuel to a potential rulemaking by the FCC that would allow some over-the-top services to be considered MVPDs--even though HBO is not angling to be a full MVPD.

HBO for decades has based its business model on being a premium subscription service for cable and satellite operators, and it has been essentially locked into licensing with them--even as the popularity of OTT services, including its own HBO Go service, skyrocketed.

Amazon's (NASDAQ: AMZN) deal to offer some of HBO's older series may have been the key to unlocking a standalone offering. Shows like The Sopranos, Band of Brothers and The Pacific are among the most popular series being streamed by Prime Instant Video subscribers and may have proven to HBO that over-the-top could be just as lucrative as its deals with major cable operators.

Because of its high-quality original series and its established position in the media and entertainment industry, HBO could be the first real competition Netflix (NASDAQ: NFLX) has seen in the past three years. Even Amazon has likely not yet brought to bear the same amount of investment as Netflix in its original content. The retail and streaming giant has publicly admitted to spending about $100 million in Q3 2014 on its original series. But HBO may be able to easily match Netflix's content spend. Netflix earmarks about 10 percent of its total content licensing budget for original content, or somewhere above $400 million for this year.

"HBO adds about 200 hours of original content every year," a CNBC article pointed out in February. "...That's on top of the movies it gets soon after theatrical release from Warner Bros., Fox, and Universal Pictures..." the article added. Citing Michael Nathanson of MoffettNathanson, it said HBO budgets about $1 billion in cash for original material each year.

However: "The company clearly doesn't want to anger partners like Comcast (NASDAQ: CMCSA)," an article in The Verge pointed out.

Plepler told investors that HBO will "work with current partners" (i.e., cable operators) as it spins up the all-OTT service, as well as explore new models. "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."

For more:
- The Verge has this story
- see Plepler's statement

Special Report: Cord maybes: Pay-TV chases millennials with OTT services, but success is hardly guaranteed

Related articles:
Analyst: HBO could add $600M to its bottom line by offering OTT option
Online piracy debate widens digital content divide between consumers, creators
AT&T tries to lure cord-nevers with $40 intro bundle

Suggested Articles

A common trope maintains that the words “Apple” and “less expensive” don’t belong in the same sentence. But the company could benefit from putting a cheaper…

Dish Network has hired Kannan Alagappan, who previously served as chief technology officer and head of technology for Australian telco Telstra, as its new CTO.

HBO Max, the upcoming subscription streaming service from WarnerMedia, has filled out the rest of its executive team in charge of original programming.