CBS/HBO Standalone Products Risks Alienating Cable, Satellite Companies
Posted 19 October 2014
NEW YORK, Oct 16 (Reuters) - Time Warner Inc's decision to make its prized HBO channel available to people who don't subscribe to Pay TV may delight such "cord cutters" but will likely crank up tensions with cable and satellite TV service providers.
By going over-the-top - media lingo for being able to watch TV with only a broadband connection - HBO has paved the way for a rocky period of negotiations with cable and satellite companies -
with issues of pricing and distribution likely to loom large.
Indeed, CBS Corp upped the ante when it announced on Thursday a digital product that provides content like "The Good Wife" without a cable subscription for $5.99 per month.
"Truth be told, there is no way to put a positive spin on this for the distributors," said Craig Moffett, senior research analyst at MoffettNathanson.
Details about HBO's standalone product, slated to launch next year, were scant. HBO Chief Executive Richard Plepler did not discuss price or potential partners on Wednesday when he revealed the news before Time Warner investors and analysts.
Still, the proposed online streaming service adds to a lengthening list of ways for consumers to circumvent pricey cable subscriptions, from Hulu to Netflix Inc and even a possible ESPN Internet channel. ESPN is owned by Walt Disney Co.
HBO is likely to face pressure from distributors to set the price for its new offering at a level that will not cannibalize existing subscriptions within the cable bundle. Barclays analysts speculated in a research report that the service was likely to cost $18 a month, which would be higher than the roughly $15 a month that cable systems typically charge for HBO.
Some cable executives, speaking on condition of anonymity, said they expect price and other issues to be points of tension in looming talks over how the service will work.
In setting the price, HBO will face a balancing act between growing its subscriptions and undercutting the cable companies, analysts said.
Both Time Warner and its distributors are expected to bring carrots and sticks to the negotiating table. HBO is targeting the 10 million broadband only households in the United States who do not have cable subscriptions.
Part of the reason Time Warner is launching a standalone product is to gain more leverage against the cable companies that it feels do not do enough to promote HBO as a premium channel. Some cable systems have as few as 14 percent of their subscribers taking HBO, while others have as much as 44 percent, according to Plepler.
"They want to have the threat," said Thomas Lieu, portfolio manager with Westwood Group, which has a stake in Time Warner.
Cable companies unhappy at being undercut by the freestanding HBO Go could retaliate by cutting their promotion budgets for the premium channel, one cable industry source said.
Other "sticks" could include slowing down delivery of the freestanding HBO Go, reviving battles that cable operators such as Comcast Corp fought earlier this year with Netflix, which ended with the streaming service agreeing to pay the cable operator for faster transmission speeds.
Plepler invoked "The Sopranos" mob character Paulie Walnuts when he said that when these deals come up, "we will get our taste."
But as HBO thrashes out new commercial arrangements with distributors, it will hardly have a monopoly on strong-arm tactics.
RELATED:
CBS Announces it's Launching a Subscription Streaming Service, Too -Just Don't Expect NFL Games or Access Outside of Major Cities
- CBS All Access launched Thursday with live and on-demand programming that can be streamed through the CBS website and on mobile apps
- The service does not have a deal in place to stream NFL on CBS games and is not available outside the 14 cities where CBS owns a local station
On the heels of an announcement that HBO would offer a standalone version of its streaming service, CBS announced it was rolling out its own.
The network launched CBS All Access on Thursday, offering live and on-demand shows that can be streamed through apps and on the CBS website.
Though Recode hails the move as the TV industry weaning itself off of cable providers, CBS says it considers the All Access service a supplement to what the network offers on TV.
Demand: CBS says its All Access service is for the 'super-fans' who want more content, not to challenge cable providers like Comcast
'It’s about super-fans being able to get a lot more of our content,' said CBS CEO Leslie Moonves.
The service is similar to what HBO Go already offers current subscribers of the premium cable channel.
CBS All Access customers will be able to watch on-demand episodes of shows like Big Bang Theory or stream shows at the same time they air on television.
There are also comparisons to Aereo, the streaming service airing network television without paying programming fees, that was sued into near non-existence by the networks.
The biggest difference between what customers get on TV and what they get on their iPads is that All Access will not stream NFL on CBS coverage because it does not have a deal with the league.
Customers will also need to be within one of the 14 cities where CBS owns a local station, limiting the service mainly to metropolitan areas like New York City, Los Angeles and Chicago.
Good deal? CBS announced customers of CBS All Access would be able to stream live and on-demand shows like The Good Wife
...-Though its $6 a month service
For those who hate television ads, CBS says that the $6-a-month service will stream older on-demand shows ad free and has cut down the frequency of ads 25 percent on newer shows.
It's not a given that the service will pull in a significant share of customers looking to pay for CBS shows when they air for free or come bundled with cable subscriptions.
The CBS audience is currently older than that of other networks, which means they watch most of their live television on the television.
Recode notes Hulu Plus, which airs Fox, NBC and ABC shows on-demand, has 6 million subscribers, though that subscription also offers basic cable programming such as Comedy Central.
End of Cable TV?=CBS/HBO Start Streaming
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