With subscriber growth in the US stagnating, HBO shook up the Pay TV market with yesterday’s announcement that in 2015 US customers will be able to access HBO without a Pay TV subscription. While the blogosphere immediately went crazy, don’t cancel your premium package or sell your shares in Comcast just yet. Wait until HBO announces the price, which will be heavily influenced by three things:
- HBO’s initial target is the 10 million broadband customers (e.g. “cord-nevers”) in the US that don’t have a Pay TV package.
- HBO competes with Netflix on original content, not price. Consumers hooked on “Game of Thrones” and “True Detective” will pay for it, regardless of whether its $10 or $15.
- HBO won’t gut existing profits. Their existing US distribution model generates $7 in revenue per subscriber per month, but comes with no cost of subscriber acquisition, no customer care and billing costs, and low churn rates (<2%/month) aligned to the churn rates of their Pay TV partners.
Given that, the likely price of the new offering will be @$16 per month, a breakeven value versus paying for HBO as part of a Pay TV bundle. But while the premium bundle is safe for now, this announcement is the first of many that we will see throughout 2015 regarding “over the top” choices for customers.
This announcement should serve as a warning to Pay TV providers that they need to upgrade their capabilities. Their frontline staff will bear the brunt of this announcement, and they will need better tools to defend the value of their premium bundles. Tools that enable relevant customer education, real-time decisions based on context and customer value, and rapid response to the changing competitive climate.
HBO is the first out of the gate, but more will follow. When ESPN announces they’re going fully over-the-top, will the Pay TV industry be ready?