Cord-Cutters Conquer? The Significance of HBO Unbundled

The complaints have been rising for years: cable monopolies result in growing costs for subscribers who often have to pay for channels and content in which they have no interest. The cable companies claim they are spreading the cost of content acquisition across a great market in order to keep prices down.

The reality is that monopolies enjoy their own logic based on biological imperatives: they do what they do to prolong their rule. 

There has been a 'content rules' theory extent though there is little hard economic evidence to support. Content is whatever those who control distribution say it is. And given that their subscribers have little or no power to change that because of the financial payments cable/telecoms can afford to make to those who make the laws, this seemed unlikely to change,

But as the financialized economy becomes ever more demanding, even huge companies like Time Warner, HBO's parent, feel the pressure. Combined with the growing demand by those who want more selection along the lines of the internet model, suddenly spinning off what was once a movie channel but is becoming a platform for all kinds of innovative programming begins to make sense. Investment firms will make fees whenever companies merge of disaggregate. But this could be one of those disruptive moments set in train without a full understanding of the cultural implications for an on-demand society. JL

Amadou Diallo reports in Forbes:

This is a watershed moment for the TV industry, with the potential to radically alter the balance of power between content providers and distributors.
As streaming services have proliferated, pay TV providers have counted on two things to keep customers from fleeing pricey subscription plans bloated with channels they don’t even watch: live sports and premium networks like HBO. Cracks in the pay TV bundle, however, are rapidly emerging.  Last week the NBA began taking preliminary steps towards a cable-free subscription package. And yesterday Time Warner TWX +0.99% Inc. executive and HBO chief Richard Plepler shocked industry watchers by announcing that in 2015 HBO will offer an online streaming plan to those who’ve ditched their cable subscription.
This is a watershed moment for the TV industry, with the potential to radically alter the balance of power between content providers and distributors. But what does it mean for cord-cutters, the small but growing group of viewers who use services like Netflix NFLX -2.96% and Amazon Prime Instant Video instead of traditional cable or satellite TV subscriptions? Here’s a look at what we know (and don’t know) about HBO’s move and its potential impact on viewers.

HBO has announced plans to stream its shows to viewers without pay TV subscriptions.

When can I get it?
No specific date for rollout of the new service has been announced. We just know that it will happen sometime in 2015.
So I can dump my cable subscription and still watch HBO on my TV?
Yes. All you’ll need is a set-top box.
How much will it cost?
There’s no official word on pricing but don’t expect a discount. The Wall Street Journal cites a person, “familiar with the matter”, as saying the new plan won’t be any cheaper than the $15 per month that cable subscribers are paying.
Will subscriptions come with a contract?
Again, there are no details on the planned service yet. It will be interesting to see if HBO includes an annual subscription option, at perhaps a slightly reduced rate. Investors would surely prefer a locked-in 12 month revenue stream as opposed to a month-to-month agreement where users could say, cancel the service during times of the year when their favorite shows are on hiatus for example.
Is this a Netflix killer?
Only hours after the HBO announcement, Netflix disclosed lower than expected subscriber growth in their quarterly earnings call. The company still expects to meet year-end subscriber goals. In reaction to the HBO move, the company states, “It was inevitable and sensible that [HBO] would eventually offer their service as a standalone application. Many people will subscribe to both Netflix and HBO since we have different shows, so we think it is likely we both prosper as consumers move to Internet TV.”
Netflix has long viewed HBO as its primary competitor, a sentiment backed by the millions devoted to original programming like “House of Cards” and “Orange Is The New Black”. After yesterday’s announcement the two companies will soon be competing directly for the same streaming customers. But it’s not a zero-sum game. More likely, as Netflix says, many consumers will see value in using both Netflix and HBO, much the same way cable subscribers use Netflix alongside their pay TV package.
Will all of this save me any money?
In the long run, it might not. The allure of a la carte TV is that you only pay for the content you want to watch. The problem for most of us is that the networks we don’t watch add very little to the cable bill in the first place. ESPN ESPN and HBO, two of the most popular networks are also the most expensive. And that’s not going to change.
Let’s assume you’d be happy with a trio of Netflix, HBO and Amazon Prime Instant Video. Assume a $15 per month fee for HBO, add $8 extra for Netflix, and a pro-rated $8.25 for Amazon Prime. Just over $31 a month doesn’t sound bad, but keep in mind that plenty of popular content in Amazon’s library requires separate rental payment at $3-$4 a pop. And of course, for any of this to work, you still need Internet service which will continue to come from your cable/satellite/telco provider. In New York City I currently pay $60 per month to Time Warner Cable TWC +2.49% for 30Mbps Internet-only service, for example. Add it all up and I’d be shelling out a minimum of $90 a month, which is still less than most cable TV packages (after the promotional discount ends). But if significant numbers of users drop their video service, cable companies will simply raise their Internet rates to make up the losses.
Why is HBO doing this?
For years, analysts have downplayed the significance of cord-cutters, and understandably so. Although HBO’s Plepler cites 10 million US homes with broadband but no TV subscription, SNL Kagan reports there are about 100 million cable/satellite/telco subscribers nationwide. It will take a long time before those numbers dwindle to levels where the current channel-bundling model stops making economic sense. The prevailing wisdom was that a content provider wouldn’t risk the ire of cable companies by offering an unbundled alternative. But cable companies would have little incentive to make life too difficult for a premium channel like HBO, let alone drop them from their lineup.
Time Warner, under heavy pressure from investors to show a plan for growth after spurning an $80 billion takeover from Rupert Murdock, is eager to add as many of those 10 million households as it can. Back in April it struck a three-year deal to make older seasons of HBO shows available on Amazon Instant Video for a reported $300 million. So it’s clear Time Warner is aggressively looking to increase revenue potential from one of the most profitable brands in its portfolio.
And again, the cable companies are not going out of business as long as they can charge for Internet access. What will be interesting to see is how many other networks follow HBO’s lead in the coming months with their own plans for cord-cutters. A hugely successful rollout by HBO in 2015 will certainly hasten that process.
Update: CBS CBS +2.11% announced today that it too will be offering a streaming subscription for cord-cutters, CBS All Access. For $6 per month viewers will be able to stream live feeds from select CBS local stations and watch current and previous seasons of shows from its catalog on-demand.