HBO Go or No Go?

HBO’s announcement about launching a streaming only version of their popular service has been received with great joy and serious apprehension depending on which side of the fence you sit. For many years now consumers, specifically people who have cut the cable cord (cord cutters) have been clamoring for services like HBO and ESPN to go rogue. Cord cutters have said that they are willing to pay a monthly fee for these premium services if they were stand-alone and not part of a cable bundle; one that includes hundreds of channels nobody wants to watch. So for cord cutters and consumers like me, who currently live in both worlds, this is a big win and giant step in the right direction towards a la carte programming.

However, on the other side of the fence sit the cable and broadband companies who have balked at HBO’s move because it will disrupt their lucrative and outdated business models and threaten the uncomfortable status quo. Incidentally, the business model the cable companies are trying to protect is akin to going to a restaurant and being told that in order to eat your favourite desert you will have to order, and pay for, all the deserts on the menu – I doubt you would be eating there again! Comcast’s CEO recently publicly rebuked the HBO announcement; “Mr. Burke warned that, whatever HBO’s intentions, ‘it’s going to be a challenge for them to not cannibalize what is already a really, really good business’.” (Source: Wall Street Journal). It is worth noting that if Comcast’s proposed merger with Time Warner Cable gets approved by regulators, they would control 70% of the broadband market; and interestingly HBO will need to rely on broadband providers like them for the high speeds and massive bandwidths they will need for this gamble to succeed.

The reality is that when most established and entrenched companies make proclamations about changing their business model or radically disrupting the status quo, it is often a knee-jerk reaction to competitive pressures and therefore rarely ever thought through. Take for example CBS’s announcement, on the heels of HBO’s, about launching their own streaming service for $5.99 per month. CBS like other broadcast networks is free-to-air. This means that unlike cable channels all you need is to buy is an over-the-air-antenna and plug it into your TV and you can watch all the networks, as well as numerous local channels and public broadcasting stations like PBS; all in HD and all for free (Source: Lifehacker).

CBS also makes a lot of money by negotiating hefty “re-transmission” fees from cable providers, which form part of our monthly monster cable bills. So the first question is why would the cable companies continue to pay these hefty fees when CBS is making the same content available through other means? Additionally, from a customer standpoint, live sports like NFL games are not included in the streaming service. Let’s face it, CBS hardly has a reputation for stellar and premium content that people are willing to pay extra for; not sure many people are doing high fives about the fact that “Two Broke Girls” will be available to watch via streaming. Also, if I want to watch the first six seasons of the Good Wife, I can do this for free as an Amazon Prime member, or see them on HuluPlus under my current subscription (where I can watch many other shows), or simply download 2 seasons at a time from iTunes for roughly $65-$70; which is still cheaper than paying for one year of CBS’s ‘All Access’ streaming service  — you do the math.

HBO on the other hand is not like a CBS (other than the misfortune of having Time Warner as it’s parent company). It has always been an entrepreneurial company with innovation as part of its core DNA. It single-handedly changed the television industry; lifting the quality of content and thus saving us all from a TV-hell filled with nothing but the Kardashians. However, the quality of content that forged HBO’s brand reputation also forced the rest of the industry to raise its game, and many have followed-suit by creating their own original and award winning programming. AMC has had huge ratings and critical success with “Mad Men”, “Breaking Bad” and “Walking Dead,” while Showtime has given us “Dexter”, “Nurse Jackie” and “Weeds”. Even Netflix has gotten into the content game with “House of Card” and is now stepping fearlessly into the feature film business with a recent four movie deal with Adam Sandler (Read my take here: “Netflix, Data, Drunkard’s and Adam Sandler”).

So unlike CBS, I believe HBO is doing this for the right reasons and more likely to think it through and get it right, now that they have woken up to and accepted the new consumer realities. This I suspect also led to their decision to go ahead and piss on their powerful cable partners whom they did not care to inform ahead of making their announcement.

HBO knows that they can no longer distinguish themselves on quality of content alone. As a result they would be competing (with the likes of Netflix) with one hand tied behind their back as long they are relegated to being stuck as part of the traditional cable bundle.

Second, they have read and accepted the tea leaves on the changing pattern of television consumption. Online video has been growing for some years but the acceleration has been marked in the last year. An Adobe study shows that for the first time online video viewing habits are going mainstream and no longer relegated to tech savvy early adopters and cord cutters; “Researchers tracked 165 online video views and 1.53 billion logins over a year, and they found that total TV viewing over the internet grew by 388 percent in mid-2014 compared to the same time a year earlier — a near-quintupling.” (Source: Wired Magazine). This means that even people who have regular cable subscriptions are choosing to watch more of their TV and movies online via internet connected devices.

Most importantly, HBO is clearly paying attention to their customers changing viewing habits that have decimated the old Nielsen TV rating system. People no longer want to watch shows based on a Fixed Point Chart (industry jargon for the TV schedule published by a channel). Instead, they prefer to watch it a few days later or simply binge watch an entire show or season during a weekend or long haul flight.

While I do not have a crystal ball and cannot predict the success of HBO’s standalone service, I do know a couple of things. It is certain that they, like Netflix, will face tremendous opposition and hurdles from movie studios, cable operators and broadband providers; all interested in preserving their lucrative status quo. However, HBO will also have the wind in their sales based on the fact that customers are demanding a breakdown of the straight-jacketed cable model and getting more used to consuming content in an a la carte, anytime, anywhere, pay as you watch model.

My money is always on companies that try to deliver on their customers’ needs and focus on making life easier for them, rather than try to force customers down a path driven by the company’s myopic goals and bottom-line greed.

#Netflix and the New Red…

Yesterday customers received an email from Netflix, and in one fell swoop this much loved company, one that was a darling of its customers, had put that strong equity on the line. It is ironic that they were thanking customers for their business, in this email, even as they were clearly holding a gun to their heads with another price hike.

Netflix succeeded in pummeling Blockbuster by re-inventing the movie rental category with an innovative business model, high customer satisfaction and a low cost service that was based on giving customers flexibility and not forcing them to adhere to policies designed to make the company lots of money.

I understand that Netflix’s runaway success propelled then into a space filled with deep pocketed competitors in the form of cable providers, telecoms, Google, Apple, Amazon, movie studios, TV networks and a slew of other companies all vying for a  piece of the pie.  I also realize that the company desperately needs cash to pay for the rising cost of content, and has to lower its costs (example postage) to survive and compete.

Steve Swasey, VP Corporate Communications said today, to MSNBC:

“We anticipated some folks were not going be happy with the change. It didn’t surprise us. 30,000 or so is a sub set of 23 million subscribers. They’re not speaking for the majority. We would like those members to stay with Netflix, but the reality is people will leave. We’ll make it up over time and the service will continue to grow. I don’t want to sugarcoat this. We do expect a certain amount of people to leave the service. Besides, Netflix members already go to Redbox, order cable, go to theater and Amazon.”

Barely a few months ago Netflix changed its plans raising their prices and forcing everyone to add a streaming option. So it seemed like they were gently moving their customer base into a streaming only world; gently being the keyword because new releases are currently not available for streaming and will not be for the foreseeable future and the streaming quality is still mediocre, at best.

Netflix has a customer base that is has been the envy of every company; staunchly loyal and fiercely evangelist; and many would have followed the company to the ends of the rental earth. But large numbers are now seeing a very different kind of red. And somehow I don’t think Mr. Swasey’s words are going to placate them.

This customer outrage is picking up steam. It remains to be seen how many of their        23 million customers will cancel their subscription, rather than pay the 60% increase being demanded, and how many will stay to help Netflix truly stay out of the red…