HBO Go - new info from VideoSchmooze:NYC

Eric Kessler, co-president of HBO, was the first speaker today at VideoNuze's VideoSchmooze:NYC and he shared a number of interesting facts and stories about the HBO Go service. (For those unfamiliar with it, HBO Go is an app or browser-based service which provides HBO subscribers with access to essentially all current series and movies on the service on an on-demand, Internet-delivered basis. The content offering is about 1600 hours and does not include the linear channel.) According to Kessler, the primary motivation was to extend the subscription term for an HBO subscriber. About 10 million people buy HBO each year. Some last for a few months, some stay on forever. The lower the churn (rate of disconnection), the better HBO's revenue and, since it is largely a fixed cost business, the increased revenue disproportionately drops to the bottom line. He put this in the context of HBO using technology in this manner before -- multiplex feeds (now 7 of them) and on demand (typically 150 hours of content).

• The app launched on May 1, 2011 and launched on the browser a year earlier.
• About 55% of viewing is on a computer; 45% is on a mobile device (e.g., tablet, smartphone, iPod touch).
• Of the mobile device viewing, 55% is on the iPad, 25-30% is on the iPhone and the rest is on Android phones (it is on 22 Android smartphone models, but no Android tablets).
• 70-72% of viewing on Go is to HBO original programs. On the channels originals are 30% of viewing; they are 43% of viewing on demand.
• The rest of the viewing (30%) is recent movies -- not library titles.

When the service launched on the browser, it only had 400 hours of content and the concept was that seasons of series would move in and out of the window (e.g., this month The Wire Season 3, Sopranos Season 4, Deadwood Season 1; next month The Wire Season 4...). It was well received, but the consistent feedback was "give us everything" -- expectations for online streaming and home video (set by Netflix) were to be able to get most everything in the catalog. You could start with Season 1 of a well-regarded but little seen show like The Wire at any time. Once HBO made this move, it greatly increased the value perception of Go.

One audience question was "does it cannibalize HBO home video?". Kessler laid out the following facts:

• 50% of home video is from HBO non-subscribers -- Go shouldn't have an impact on that
• 20% of home video is from HBO subscribers who want to have the physical disc - Go shouldn't have an impact on that
• subscriptions are 80% of HBO's business and home video is 20%, if some home video gets cannibalized (and DVD sales are declining systemically anyway), then it looks like the benefit is worth the cost

Kessler had little enthusiasm for separating Go from HBO subscriptions sold by multichannel distributors. "HBO customers watch 14% more television than average. They are the last people who are going to cut the cord." Of the 115-117 million TV households, 102 million are multichannel subscribers. "You don't want to undercut the affiliates for a few hundred thousand subs."

Kessler similarly had little enthusiasm for selling HBO programs to any other streaming provider like Netflix -- "It would be like selling to Showtime. They are our competitors."

HBO looks to be doing a great job of building a service that supports the core multichannel subscription television and also addresses that business's greatest weakness - a lack of direct connection with the consumer for the future time when working through the multichannel distributor might not be the only attractive option.

Interestingly, a panelist in a later session, Marcien Jenckes of Comcast noted that as many people watch Dexter via illegal BitTorrent downloads than on its TV home, Showtime. Showtime does have a video streaming service Showtime Anytime, but it does not appear to be as well regarded as HBO's Go.

Updated 1 December 2011 with additional coverage:
VideoNuze (focus on decision to work solely through multichannel distributors)
Multichannel News (focused on cable industry Go-related spats)
Paid Content (focused on impact on, and appeal to, cord-cutters)

Cord-Nevers are a Bigger Issue than Cord-Cutters

Steffan Anninger of Credit Suisse, as reported in The Hollywood Reporter, made an interesting and perceptive point about the impact of competition from over-the-top video on the multichannel subscription business. Over-the-top video will likely have a much bigger impact on new subscribers choosing not to sign up than it will on current subscribers dropping the service.

Over-the-top video follows the classic example from The Innovator's Dilemma (hat tip, Lost Remote)-- it is not a good substitute for current multichannel video customers (relatively poor picture quality, no household brand cable networks, poor integration with broadcast signals, clunky channel surfing). It does have a few advantages: very cheap, inherently multiplatform and very open to new programmers. Something in that combination may make it attractive to a niche, "foothold" market from which it can expand out with more refined later versions, typically supported by improving technology. Cable-nevers may be that foothold market.

Sony's "Assault on Cable TV" - Don't Hold Your Breath

The Wall Street Journal reported today that Sony was in discussions with major cable programmers about a service that it would distribute via the Internet to PlayStation 3 game consoles and other Internet-connected Sony devices. Last week the WSJ had a similar story about Dish Network.

Original PS3 on left, new slim PS3 and controller on right

Sony certainly brings a number of things to the over-the-top party, including one of the most used Netflix streaming devices in the PS3, a movie and television studio and a leading seller of televisions, computers and other electronics -- nearly every possible client device.

While many would like to see such a service, it does not look like anyone, including Sony, has found a way to address the three fundamental things that are standing in the way of such an offering:

1. Some channels do not have the right to transmit their programing (which is often acquired from a third party such as a movie studio) over the "open Internet". "Open" in this case is related to security -- studios are concerned about piracy -- rather than "open platform" the ability to have third party applications and providers running on the network. Something on the open Internet can be reached by anyone with Internet access; something on a close network requires a user to be physically connected to it. I defer the discussion of whether a VPN is closed or open to others.
2. Sometimes cable/DBS companies actually forbid cable networks from distributing their programming over the Internet, even if such delivery is only to paying subscribers.
3. One of the other problems is that advertising produced for television/MVPD compensates performers differently than advertising produced for the Internet. The advertisers, not unreasonably, don't want to pay more if a handful of people watch "TV" on the "Internet". One example of this is that MLB Extra Innings on cable contains the local TV commercials; MLB Extra Innings on the Roku box or on your computer does not. No advertising effectively makes the platform much less attractive to all the ad-supported basic cable networks (e.g., ESPN, CNN, USA, Lifetime).

Frequent readers will recognize this list from my post of 5 Nov.

How would we get past these issues? If the FCC declared that an over-the-top video distributor would be regulated as an MVPD, all of these issues would be effectively resolved. Short of that, it will take awhile.

Comcast, DirecTV No (HBO) Go on Roku

Comcast and DirecTV have decided not to authorize their HBO subscribers to use HBO Go on the Roku platform. They do have deals for HBO Go and they do authorize the app on other platforms (e.g., iPhone, iPad) and it would not cost the distributor or the customer any additional money.

There are two good reasons for this choice: they don't want the competition and don't want the strong programmers to find their own way to the television set, as per my earlier post.

Roku 2 XS with some of the services available on the platform

Below see Rich Greenfield's demo of HBO Go on the Roku box. It does an excellent job of highlighting the difference between HBO Go on the Roku and the lesser experience of HBO on Demand on Time Warner Cable, as seen in the second video.