Premium pay network HBO is set to go over-the-top (OTT) direct to consumer in the US with a standalone HBO Go offering to become available in 2015. The service is aimed directly at the 80 million American homes which do not subscribe to HBO, including 10 million broadband-only subscribers.
Details were light on the upcoming service that will not require a pay TV subscription. HBO CEO Richard Plepler stated that HBO will work with current and new partners. However, pricing on the new service, which will be a delicate matter for current pay TV distribution partners and consumers, has yet to be announced.
Additionally, HBO will be launching its own marketing campaign for the first time in 20 years, which will be in addition to marketing by its distribution partners, which Plepler stated they have been far too reliant upon. It is likely that the standalone HBO Go service will be a large part of that campaign.
Outside the US, HBO has offered an internet-only HBO service in the Nordic regions since 2012. In the US, HBO Go has been increasingly bundled with broadband services and a low-cost broadcast TV basic package as a way to lure cord-cutters and satisfy cord-shavers.
Back in August 2013 we identified HBO as the content owner with the greatest flexibility to explore a direct-to-consumer play (see Insight report: Content Wall represents biggest roadblock to direct to consumer OTT). It makes sense that HBO is interested in a pure-play OTT scenario, given that subscriber growth in the pay TV universe will be harder to come by in future years. However, a transition toward a dual pay TV and OTT play is not without risk. If it is successful, HBO has the opportunity to capture new subscribers from newly-forming households who would likely never take a pay TV subscription. But without caution, the company could jeopardize its existing pay TV relationships. Ultimately, though, millions of households who would never have access to HBO will have the potential to become subscribers.
The question remains whether or not the result will be cannibalization of existing pay TV HBO subscribers. IHS believes that it is likely that pricing for the new OTT service will have to be in line with current pay TV pricing, around $18 per month, making the possibility of cutting the cord in favor of the new service less likely. Given that pay TV subscriptions to HBO, while showing signs of renewed growth in the past year, will likely hit a wall in terms of further subscriber gains in the coming years, pay TV operators are less likely to voice vigorous opposition than they would have in the past.
That's not to say that pay TV providers won't experience some amount of pain. Some subscribers take a video subscription only so that they can watch Game of Thrones, but that population is minimal. It is likely that there will be some adjustment to existing revenue-sharing deals in favor of pay TV operators, and again the shift is expected to be minimal. For HBO, the addition of any amount of new OTT subscribers will help to strengthen the brand.
HBO is a worldwide brand synonymous with the production of high-quality original programming, as well as for showing blockbuster movies. If the company is successful in the endeavor it is likely that it will continue to expand internationally in the OTT space.
The new service could be a big win for newly-formed TV households, and those that will form in the future. One of the most pirated pieces of content on the internet today is Game of Thrones, and it is plausible that if given a route to a legal path to the content that a number of video pirates and people who borrow login credentials to HBO GO, will embrace the new service as an opportunity to straighten up and fly right. Certainly the new service will not wholly counter piracy or subscription borrowing, but it is a step in the right direction.