Tuesday, March 10, 2015

HBO Not Worrying About Cannibalization

Yesterday, Apple formally announced an exclusive partnership (albeit only 3 months) when HBO Now will be offered strictly on Apple devices.  HBO's new streaming service will be offered to all consumers regardless of whether they are authenticated cable customers or not.  And like Netflix, Amazon Prime, and Hulu Plus, HBO Now hopes to capture the consumer desiring content on their digital devices.  But unlike these other streaming services, HBO is risking their current subscriber revenue stream.  Or are they?

The threat of cord cutting, the rise of the millennial audience, and perhaps a lucrative revenue model might just make this new approach by HBO a win-win scenario.  Its corporate owner, Time Warner, no longer owns a cable operator so there is no loss of synergy.  Cable operators are unlikely to drop HBO on their own cable platform as it is the most popular, highest purchased of the premium tier networks.  And the pricing model may just protect HBO regardless whether a customer purchases through a cable operator or through iTunes.  At $14.95 a month for HBO Now, and only a 30% share with Apple (per reports), HBO Now's net could potentially be higher than the net revenue per cable sub per month.  If that is true, cable customers that cut the cord but buy HBO No could give them a net revenue gain.

I don't expect cable customers with HBO to be motivated to cut the cord because of this new streaming service.  They already enjoy HBO on their mobile devices because of HBO GO, its authenticated streaming service.  This added value product has been accessible to cable customers for some time.  Rather, HBO Now is more focused on the 10 million or so non cable, internet customers seeking more online content, specifically exclusive content that HBO offers.  The new season of Game of Thrones is one such example.

How will HBO Now do?  Millennials, whose parents have cable with HBO, are likely using mom and dad's access to get HBO remotely.  But for those that aren't and see incremental value with HBO content may be eager to purchase.  For HBO, the launch of HBO Now seems to be all positive with limited downside risk.