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Defying the Gravity of Cable Giants: HBO Nordic AB and Its Implications

Posted by Atul Patel on October 3rd, 2012 at 5:00 am

Defying the Gravity of Cable Giants

In a system of established cable and television business models with restrictive syndication, it seems the only way to push the evolution of video forward is to approach distribution in as many angles and in as many territories as possible. HBO is finally embarking on this frontier with their recent announcement of HBO Nordic AB, a service that will provide HBO content direct to consumers for the first time in Europe. It’s true that HBO is only doing this in countries where its cable business model is not as entrenched.  However, this move is a symbol of changing audience expectations and the very real opportunities that exist for video producers and publishers if they will only tap in.

HBO Nordic AB is set to launch in mid-October in Sweden, Norway, Finland, and Denmark, bringing the company one small step closer to having content everywhere the audience can watch it. The channel will sell streaming subscriptions of HBO content and licensed content to non-cable customers for the first time. However, even with growing consumer demand, HBO has been hesitant to bring a similar service to the United States. HBO and its owner Time Warner likely views this type of service as a threat to its cable-subscription business model and deeply rooted relationships with Comcast, DirecTV, Verizon, etc., which bring in the majority of its current revenue. Its streaming service, HBO GO, only provides streaming content to customers with existing cable subscriptions.

However, CEO Jeff Bewkes’ statement that “Time Warner will never offer HBO GO as a standalone streaming service because it's not what the people want” will likely evolve over time. Nielsen data shows a 22.8% increase in cord-cutters over the past year alone and flat cable subscriber growth in 2011. In order to stay competitive and build viewership, those publishing content to the end-users must embrace the evolving ways those audiences consume content by innovating beyond the traditional models.

Instead of shying away from direct-to-customer streaming, HBO and other traditional and new video services should view reaching audiences outside of cable and traditional television as just another means for revenue generation. Commentators have argued that the small profit margin wouldn't make sense for giants like HBO/Time Warner, but there are ways to increase the margin and prepare for changing consumption trends. HBO, for example, could offer a streaming service trimmed down to just its owned content. HBO GO currently offers HBO shows, along with the costly movies of several other producers and aggregators (Lionsgate, Paramount, Universal, etc). A trimmed-down streaming platform would allow HBO to avoid the work and cost involved with licensing content from others, enabling it to offer streaming services at a lower cost to non-cable subscribers. HBO would then be able to compete or work in tandem with services like Netflix and Hulu by engaging audiences who are willing to pay the small subscription fee if it means they have access to their favorite HBO original and exclusive programming. And with direct-to-customer streaming offered at slightly smaller scale, HBO won’t threaten cable business models, but can still tap into a growing population of cord-cutters. Win-win-win.

There are other interesting outcomes that could come from this.  For example, if the producers who are supplying licensed content to HBO, create their own direct-to-consumer strategies, they may tighten the licensing agreements and force HBO to limit their service to original programming.  However the relationship evolves between HBO and the US cable companies, one thing is certain – the streaming will happen over the wires and waves controlled by the cable and telecom companies.  Because of this fact, everyone will still have to play nice and develop economic models that allow all parties involved to come out on top.

The game is changing in such a way that more media companies will come to participate in direct-to-consumer content,  from the large companies like HBO and Time Warner, to the niche companies who can evolve much more quickly.   What HBO Nordic AB is embarking on is just one example in an endless list of signs that this change is underway, and it will enable audiences to explore beyond the traditional TV guides and remote controls.

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