June 06, 2012
There may have been a stir over people wanting access to HBO shows off of cable before Game of Thrones, but the popular TV adaptation of George R.R. Martin’s excellent Song of Ice and Fire series has escalated the issue. Whereas some HBO shows are available through, say, iTunes, this past season of Game of Thrones was not, leaving people without cable with no legal way to watch. Thus sites like TakeMyMoneyHBO.com, a campaign to convince HBO to offer a direct subscription.
Dan Frommer makes the case that such a campaign is for naught:
It turns out, via TechCrunch, that people say they are willing to spend around $12 per month, on average, for direct access to HBO GO. That itself is not going to turn any heads at Time Warner. (I’m paying something like $17/month for HBO right now, through Time Warner Cable.) It’s just not enough — on either a per-subscriber or cumulative basis — to drive HBO away from its lucrative, long-term relationships with cable companies. If you could come up with $1 billion a month, maybe they’d talk. But $12 per sub? Nope.
The TechCrunch poll aside, I think it’s fair to say people would spend more than $12/month should HBO offer a direct subscription service via the internet. We can illustrate this by looking at the first season of Game of Thrones, each episode from which costs $3.99 in iTunes. Excepting a minor break if you purchase the whole season, you’re basically paying $40 for the season. There are ten episodes in Season One, which means the season runs for 2.5 months. In other words, just to watch Game of Thrones (the show that prompted much of this discussion in the first place), you’re paying HBO $16/month. I haven’t heard anyone complain that the episode prices here are too high, merely that HBO should offer both seasons in iTunes.
Dan Frommer points out that he’s paying $17/month for HBO service through his cable provider, but he’s getting a lot more than just Game of Thrones. Assuming HBO can keep a subscriber’s attention for the other 10.5 months,1 they’re making more per show with a direct subscription than they are with the traditional model.
But do the numbers add up? Frommer thinks there isn’t a distribution channel out there that reaches the same number of people cable does, and maybe he’s right.2 But that’s not the point, because this isn’t a one-or-the-other scenario. HBO can continue offering their traditional cable service and still offer direct subscriptions. The people who don’t have cable aren’t going to subscribe just so they can watch Game of Thrones. These people are either going to visit a friend’s house to watch, or download the show illegally. Why not take their money by giving them the opportunity to watch their favorite show online, and still make money on the traditional cable model?
Just recently, I listened to Tim Ferriss talking to Chase Jarvis about eBook piracy, and Ferriss came to the conclusion that it wasn’t a big deal: the pirates weren’t going to buy Ferriss’ book one way or the other, and the word-of-mouth generated by these pirates still helped fuel sales for those who didn’t want to pirate. By offering both distribution models for its original programming, HBO is benefiting not just from the direct sales, but from the word-of-mouth generated by those direct sales, which in turn helps to bolster its traditional distribution.
I just don’t buy Frommer’s argument that offering a direct subscription service is a bad financial move for HBO, so long as it’s in addition to their traditional service. There’s no need to replace the old model just yet, merely compliment it. When the old system is neglected by the majority of consumers, HBO will be all the better prepared.