"I'm now finding that for some kinds of content, the illegal is clearly outperforming legal," Biddle said. "That blows me away. I pay for premium cable. It's easier to use BitTorrent to watch Game of Thrones. HBO Go is trying very hard to do a good job," he said, but the user experience just isn't as good. Because HBO Go is a streaming service, he said, it's more vulnerable to network congestion than simply downloading the entire episode from the darknet."
Fix this and you 'fix' piracy. Oh, and the fix isn't "shut down the darknet" it is provide a better service.
Piracy costs HBO less than "fixing HBO Go" would, since HBO is cross-subsidized by subscriptions to cable.
The fix for piracy is to create compelling content under the "superior" business models piracy advocates have so much faith in. Netflix is starting to do this; over the next 10 years, lots of media/creative/production people are going to get very rich figuring out how to produce and sell content online. In the meantime, people should stop bitching about how hard it is to get Game of Thrones; they sound ridiculous. Why on earth should anyone care how hard it is to see a swords-and-sorcery soap opera?
Wow, unlike you to go ad hominem like that. But setting aside your disdain for their choice of content, what do you base the claim "Piracy costs HBO less than 'fixing HBO Go' would" ? The articles we've seen here and elsewhere suggests there is some unmet demand, if we stipulate that a team to 'fix HBO Go' is relatively small [1] then what is the lifetime value of having that content more widely addressable? My intuition suggests it would be higher than the cost of fixing their distribution strategy.
[1] I'm imagining a team of two lawyers and an manager to negotiate providing their content on other services like NetFlix, Hulu, and paid-Youtube distribution. Maybe $550K over 12 months? A $1M?
Whoah, sorry! I didn't realize my comment came across as critical of you. I do harbor some disdain for Game of Thrones (which I pay for, via my subscription to HBO), but then, the first CD I ever owned was Phil Collins "No Jacket Required", so trust me I'm nobody to talk about taste.
The problem with "fixing" HBO Go isn't logistical; it's that the revenue from distributing GoT directly over the Internet would have to offset the revenue (and operational cost savings) HBO achieves by serving its content over pay TV systems, and by serving as the anchor for comparatively pricey recurring-revenue "premium" pay TV subscriptions, and by serving as a cross-subsidized draw for basic cable subscriptions. And it's just unlikely to do that.
Ok, so if I understand your argument, the additional revenue from off-cable sources would be offset significantly by a reduction in cable subscribers? If so it sounds like the newspaper 'trap' where the costs of the printing presses (sunk cost infrastructure) gets a smaller base to amortize over.
I don't know enough (or much at all) about the pricing structure of cable. I've read about the disputes when TNT is suddenly no longer on Dish Network and instead there is a missive about how TNT is being so unreasonable about costs yada yada. But those events have suggested that there is fixed cost per anum that Dish and the Cable companies pay to carry the premium channel's content, and then the content distributor is left to make that money back by squeezing it out of subscribers.
So assuming there isn't a contractual obligation of exclusivity (and in HBO's case they are on all the other things like Direct, Time-Warner, etc) would it be reasonable to assume that they could add the additional outlets without changing their pay-TV structure at all? And if they could, wouldn't that revenue be all accretive to the bottom line?
I agree that a completely re-whacked HBO would have a totally different cost structure, but offering up their original programming to say NetFlix to stream? That seems pretty straight forward.
Well, first, it's not my argument; it's both the conventional argument for the bundled pay TV model, and HBO's explicit argument for why they won't sell you an online-only subscription to HBO Go.
Secondly, the issue isn't that HBO is contractually unable to offer direct HBO Go subscriptions or release-window a la carte access to Game Of Thrones episodes. The issue is that it would be financially irrational of them to do so, because their subscribers would defect to the online offering; they would, in effect, be offering a fire-sale on their most valuable offering.
I don't know how much a single episode of Game Of Thrones would cost if you factored all this into it. It obviously wouldn't cost $2.99. I'd tentatively suggest that it would cost so much that people would pirate it and rationalize doing so by saying "HBO can't reasonably expect people to pay so much for a single online episode of Game Of Thrones; if they just used more reasonable prices, people would stop pirating".
I think you have a good grasp of how the execs at Time Warner Inc. (not TW Cable) see it. One can read the earnings call transcripts on seekingalpha where they all but spell it out.
But, just to make it clear here for Chuck and others (rather than wasting time reading earnings' transcripts):
1) As soon as HBO offers their content via other dist. channels, the cable and satellite companies claim in their negotiations that the content is now worth less and they deserve to pay lower rates.
2) Lots of people pay for HBO without ever watching it (i.e. my parents), simply because they'd rather just pay for the premium package than figure out which channels to subscribe to. They are like non-customer subscribers. HBO et al would not see a dime from these people otherwise.
Also, HBO collects revenue from real subscribers based on the promise of high-quality content down the road. They satisfy this requirement often enough that a huge portion of all cable subscribers automatically upgrade to HBO. An a la carte model would allow those subscribers to wait-and-see; instead of investing effort to get engaged with a show like Treme, they'd sit back and wait for the show's merit to be validated by other people, and opt in only to the shows that were immediately compelling.
Interesting. I should probably clarify that I'm paraphrasing CEO Jeff Bewkes's thoughts given a couple quarters ago; these aren't my own thoughts. It seems like you have found further reasoning on your own which makes sense, and would give greater justifications to the execs to shy away from a la carte offerings. It just makes no business sense with two-tiered distribution and bundling.
Ok, now we're talking. So lets deconstruct this argument a bit (I realize its not "your" argument, it is the offered argument)
"The issue is that it would be financially irrational of them to do so, because their subscribers would defect to the online offering; they would, in effect, be offering a fire-sale on their most valuable offering."
There are three claims embedded in this argument let's break them apart individually.
1] "Users of HBO only subscribe to HBO for the original content."
Let's stipulate that this is a rational market. You've got people who pay for "all" of HBO (which spends most of its air-time showing 'movies' not original content), people who pay for it only for the original content. What is that ratio?
I'll claim that most (aka more than 51% :-) of their subscribers are movie watchers. On Comcast they have 8 channels, HBO, HBO2, HBO Family, HBO Comedy, HBO Signature, HBO Latino, HBO West, and HBO Zone. The bulk of the content is movies. Based on the value proposition "you have to pay for 8 channels at an additional $10/month ($120/year) to get your one original content show." And the fact that boxed sets of the previous year's episodes are offered for $40 - $60. I claim that the majority of HBO's paid subscription is there for the movies, and that they get HBO created content is a 'nice to have' feature.
2] "The number of people who don't subscribe to HBO because they are only interested in one show or perhaps a small number of original shows is quite small."
I don't know that number of course. But one could reason about it if you knew the resale rate of the boxed sets of original content. That is an imperfect indicator since you don't have survey data that says "are you a subscriber to HBO or not?" and you don't know which of their original content shows would continue to hold value past their air date (dramas sure, newsy stuff not so much). If someone knows what the sales rank of those boxed sets are though could get an indication. They are quite popular on bittorrent so clearly there is a demand (I know that isn't really in question)
3] "The original content is the 'most valuable offering' and the revenue generated for that net original content in a two tier model would be significantly less (fire-sale) than their current revenue."
My claim is that the number of people who subscribe to HBO just for the original content is quite low (its not a good value) thus offering the original content through another channel would not change the value proposition to a material number of current subscribers.
But capturing the revenue from people who would subscribe to a service that offered the original content would increase their bottom line.
I am really surprised they haven't A/B tested this much. Put an original series out there and offer it through a third party service as well using a modified release-window model (say a week).
HBO is subsidized by the price of the entire cable bill. There are people who get cable in large part because they want access to HBO; HBO captures a portion of that revenue too.
HBO has stated directly that they would lose money if they offered a la carte access to their content. Recurring revenue is an extremely powerful thing; if you have a business model that works that drives recurring revenue, you stick with it.
HBO's business model works extraordinarily well; they have almost 30 million subscribers.
Ok, I think you've accurately communicated HBO's reasoning for thinking this would be a bad idea. I'm not persuaded by their argument. For the reasons that I enumerated.
I completely accept that they wouldn't be persuaded by mine either if that helps. I firmly believe however that someone will adopt this sort of model and then we'll have an empirical example to talk about.
Your second paragraph here is actually the root of my argument as well! I agree strongly. Content is inevitably going to be product for the direct Internet market, and that model will eventually supplant the pay TV model.
HBO is itself effectively just a middleman (at least for most of the content we care about). Maybe we should stop talking about what HBO should do, and start talking about what companies like Blown Deadline (David Simon's production company) should do. Again, my sense is that many more potential viable productions exist than are greenlit by AMC, FX, HBO, and Showtime.
Why not just say "oh yeah? your FACE is a game of thrones"? It would contain the same amount of content and at least people wouldn't have to wonder whether you were silly enough to think you were making a real argument.
not really. just pointing out you go on silly rants here all the time. You, of all people, accusing other people of 'bitching' struck me as funny (and somewhat hypocritical). Take it for what it is worth.
People just us Game of Thrones as an example because it was popularized by The Oatmeal (and possibly others) for it's status as being easier to pirate than pay for. I think they just use the name as a symbol now because if you mentioned a different piece of content people would wonder why you mentioned that show specifically.
It's also the nerdiest show HBO has made in the last 10 years, so it has special appeal to the demographic least likely to ever pay for HBO to begin with.
Nah, True Blood is fairly mainstream. It's a paranormal romance populated entirely by good-looking people with copious sex and violence and reasonably simple plots. These are all things that mainstream viewers love, and True Blood's numbers reflect that.
Game of Thrones is a gritty medieval fantasy political drama whose viewers actually requested less sex after the first season. Game of Thrones commonly features scenes of (for example) haggard old people sitting at a table talking about whether they'll go over a bridge or whether they should walk through a forest. It is probably the geekiest show I've seen on TV in my lifetime. Maybe ST:TNG beats it, but I'm not sure.
People aren't bitching about "how hard it is to get Game of Thrones", people are bitching because they'd love to pay for it, legitimately, but without subsidizing all the bundled crap .
I have zero interest in ESPN, Disney and "reality" television. I understand fully why HBO is making more money than ever out of the bundlers' desperation, and don't complain that they're "losing" money (which isn't the case) but I would certainly prefer to be given the option to buy the content alone.
"In the meantime, people should stop bitching about how hard it is to get Game of Thrones; they sound ridiculous. Why on earth should anyone care how hard it is to see a swords-and-sorcery soap opera?"
The exact content is as irrelevant as your dislike of it. Dislike for Cable television providers didn't originate with GoT.
In other words, people are bitching because they'd love to pay what they think GoT is worth, and not what GoT is demonstrably actually worth to HBO.
Pay TV will eventually lose in the market as people (again, like Netflix) figure out how to have compelling content created for the direct online audience. But it won't lose until that happens.
Incidentally: I'm not the one who keeps bringing up Game Of Thrones.
> I'm not the one who keeps bringing up Game Of Thrones
People aren't necessarily bringing it up because of the content. More because the logistics of how it's distributed have been talked about before. By bringing up Game of Thrones, the point is to discuss the issues around it, not start a thread on the merits of the content itself.
but without subsidizing all the bundled crap. I have zero interest in ESPN, Disney and "reality" television.
You think that you are subsidizing all those shows, when you only want your shows.
But to another household, your shows are the noise that they are subsidizing to be able to watch their shows.
To a first approximation, if everyone could order exactly the channels they wanted, they would all be paying the exact same, just with fewer channels to flip through, and with more expensive bookkeeping.
This assumes uniform consumption. I suspect (based on watching people's viewing habits) that most people watch a lot more channels than I do, but I have to buy the same package as they do just to get the particular set of channels I want, so I'm not sure this is true. This is what people are getting at: I only watch three channels, but I have to pay for about 400 to get them. Meanwhile, my friends also pay for 400 channels and watch 40 of them. If everyone could order exactly the channels they wanted, it seems unlikely that I would be paying the same price they are.
If you really restrict yourself to only a few, you might be better off. But you would be the rare bird. And if people really had to pay $4 for the History Channel for just 30 minutes of Storage Wars a month(is that the right channel?), they would probably skip it.
There is also the loss of option value. (I can flip to MTV if my friends call me up and tell me there's something I need to watch, even though I really did program both my TV and DVR to remove MTV from its listings.)
Also, you are drawing the line at the "channel" boundary, but even a channel is bundling a whole bunch of shows. Someone who watches 1 hour on three channels each is consuming the same amount of TV as someone who watches 3 hours on 1 channel. Cable companies could do per-unit billing, but customers hate that. The vast majority of customers prefer to pay the all-you-can-eat price so they don't have to worry about cost if they leave the TV on or just want to flip down the dial.
Netflix is the ultimate bundling. There are thousands of things there that I have absolutely no intention of watching ever, but that doesn't mean the "fair" price is the 1/1000th of my monthly fee.
"And if people really had to pay $4 for the History Channel for just 30 minutes of Storage Wars a month(is that the right channel?), they would probably skip it.
There is also the loss of option value. (I can flip to MTV if my friends call me up and tell me there's something I need to watch, even though I really did program both my TV and DVR to remove MTV from its listings.)"
These are your opinions, though, not a persuasive argument for a person who will never regret not having the option to pay for television they will never watch.
"You think that you are subsidizing all those shows, when you only want your shows.
But to another household, your shows are the noise that they are subsidizing to be able to watch their shows."
Good. If they want 500 channels of terrible programming, they can pay more for every one of them.
"In other words, people are bitching because they'd love to pay what they think GoT is worth, and not what GoT is demonstrably actually worth to HBO."
They are bitching because they would like to be given the option to pay for HBO by whatever metric HBO uses to quantify the cost of its content (including subsidization), whatever that may be.
> Piracy costs HBO less than "fixing HBO Go" would … people should stop bitching about how hard it is to get Game of Thrones
If piracy costs less than "fixing HBO Go" would, then people should stop bitching about piracy, shouldn't they? Because this seems to imply that the impact of piracy is literally negligible.
That is a good point, consider however the counter point that wids spread bitching can be 'low cost' from the standpoint of 'keeping piracy in check', which is to say trying to lay a guilt trip on people who are on the fence.
Sure, and to secure those deals the content distributors should have to convince the creators that their channel/network is the best way to monetize their property.
So how does that still make sense in light of the trend towards households in lucrative demographic segments ditching cable TV at a rate comparable to landlines?
Is an exclusive deal with a cable TV premium channnel like Showtime really the best way for the Dexter creators to get paid? If so, I'm amazed.
No they're not. Production companies sell shows to distributors. Nothing prevents them from selling shows to Netflix, except that Netflix won't pay them as much as HBO will.
This depends on how risk averse one is. I personally would be afraid of getting on hit list for the movie association (can't remember the acronym now).
Economic theory says that either a bundling or an a la carte pricing strategy can work on its own for information goods, but if some are doing one and others are doing the other, there will be a ruinous price war. See http://www.dtc.umn.edu/~odlyzko/doc/price.war.pdf for details.
Due to historical circumstance, the content providers are stuck on the bundling strategy. Consumers seem to prefer a la carte. Any startup that tries to deliver what consumers want, given established providers and the economic theory, is going to fail.
That assumes that the cost structure to producing viable content is the same for a la carte providers and bundled providers. But the cost structure isn't the same. A la carte providers can invest in just a few high-quality titles, and the most compelling titles aren't necessarily the most expensive. Bundled pay-TV is also by design stuck with an expensive "spray and pray" model.
But while cable has and needs billions of dollars of revenue they will offer billions for exclusive access to whatever content is deemed compelling (sports, Game of Thrones, HBO generally).
A la carte providers just can't compete in the exclusive bidding war yet and the value of exclusivity is worth more than the incremental revenue of a la carte sales. There will be a point at which cable penetration could be small enough that these effects change but it has a long way to fall before it gets there. In the UK Sky has massive amounts of top class exclusive content on under 50% household penetration and they are still growing and strengthening their position.
Do I have to concede that HBO and new a la carte content producers are in a bidding war? I don't follow this market that closely, but I follow it a bit, and the sense I get is that there's a threshold price at which any producer has a good shot at securing high-quality marketable content: good shows get cancelled, or never picked up at all, all the time.
Quite a lot of what we might regard as good content (with niche rather than mass appeal) could be helped by this but it won't free the big budget mega-hits any time soon.
"I'm now finding that for some kinds of content, the illegal is clearly outperforming legal," Biddle said. "That blows me away. I pay for premium cable. It's easier to use BitTorrent to watch Game of Thrones. HBO Go is trying very hard to do a good job," he said, but the user experience just isn't as good. Because HBO Go is a streaming service, he said, it's more vulnerable to network congestion than simply downloading the entire episode from the darknet."
Fix this and you 'fix' piracy. Oh, and the fix isn't "shut down the darknet" it is provide a better service.