HBO

The Most Important Decision to come for the Media Industry in 2015

by Robert W. Rosentel, Mediavatis Consulting

As 2015 officially kicks off, I would suggest that the most important decision in the media business on the horizon for the new year is an unusual one:

How much will HBO charge for

its new direct-to-consumers OTT video subscription service?

This may seem like an odd choice for the “most important question” given all the innovations and new technology that we expect (or don’t yet expect) to see in the coming 12 months.  But, the pricing of the direct HBO service is a critical juncture in the business of the cable industry.  It will set a tone and a trend for the future of video distribution.

Several possible price ranges have been rumored.  Let’s consider what each of these would mean.

1 ) Price of $8/month (or thereabouts)

This price point would be the most aggressive option indicating that HBO is ready to go head to head with Netflix, Amazon Prime, Hulu Plus and others.  However, the cable partners of HBO would be undercut by a price point below what they have offered customers for HBO (which includes HBO on Demand, and HBO Go).  This would likely lead to a catfight of sorts between long-term partners and may lead to contract battles and price cutting.  It would be a major move on HBO’s part to explore a new business opportunity without much regard to their current distribution system.

2 ) Price of $10 – $15 / month

This is considered the safest bet for both Cable distributors and their happy relationship with HBO, because it matches the current costs for HBO in most households who pay through their cable company. (bundled or ala carte).  At this price point, HBO is not likely to anger their longtime cable partners, but also not likely to attract many viewers who can’t currently afford HBO.

3) Price of $20 + /month

This price point has been rumored, and would indicate a “high-end HBO service” (possibly with many more titles and video libraries attached).  This would likely only attract the highest income households, and would have little or no effect on the HBO-subscriptions currently in place through cable partners.  It would represent a targeting of consumers who value access and choice with little regard to cost.

In each of these cases, HBO assumes the costs of distribution, customer service, and billing which are currently handled by the cable partners. However, there is no partner split the revenue on the distribution side (we assume).

HBO will make the decision (allegedly) in the first quarter of 2015 about the service and its price point.  This decision will set the tone for the future on the relationships that have been mutually profitable to both premium video channels and cable distributors for over 30 years.

If HBO picks the safest bet (i.e Option #2), and prices near the current costs of their services from an MSO, how long will it be before the marketplace (i.e.  consumers), new competitors (e.g Netflix, Verizon, etc) and old competitors (e.g. Showtime) or other factors force their hand to deliver a less expensive, and less encumbered service? Another year or two? The importance of the decision rests in the choice that HBO makes.

What do you think?