HBO is currently a bundled product. To watch Game of Thrones you need a cable subscription. That means that to watch it you either subscribe to a premium package on cable or you pirate. HBO clearly do not make money on the latter and the chances are, if you are not in the US, that is the desirable option.

But consumers do realise that piracy is unlikely to sustain HBO’s incentives to invest in quality television. One of them, Jake Caputo, has set up a website pleading with HBO to take his money. He wants to be able to subscribe to HBO GO (HBO’s online option) without having a cable subscription. (Yes, apparently you need that for the online version). He invites others to submit what they would be willing to pay per month for HBO. TechCrunch estimates that the average from that data is around $12 per month. Is that enough to get HBO to unbundle its product?

Apparently (again from TechCrunch), HBO has 29 million subscribers in the US paying around $10 per month. HBO receives $8 of that. That would seem to suggest that HBO couldn’t lose by offering a $12 per month subscription.

However, the amount that it receives back from cable providers likely comes from the fact that the tying of HBO to cable is driving and keeping customers there. With an unbundled option some of those customers may not subscribe to cable and so the subsidy might end.

There are two reasons to doubt that this would be severe. First, people dropping out of cable to consume HBO’s online only will likely still consume the cable or related infrastructure for their Internet service so the contribution to the cost of that infrastructure will be preserved. Second, there are enough cable customers who still want HBO that cable providers won’t want to see HBO deciding to charge even less for HBO GO in competition with them and so will keep the subsidy to HBO high to keep that competition in check. Finally, chances are that the main beneficiaries will be international consumers of HBO and so this may dramatically expand their market — at the expense of international cable providers but my first two points apply to them too.

HBO has an independent brand and has the potential to become an independent content channel. Others will pay to bundle them for the foreseeable future so there seems to be little downside to asserting that independence and reaching a broader audience. The alternative is to follow down the music industry path and find yourself competing with free.

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6 Responses to Should HBO sell an unbundled product?

  1. Andrew says:

    They could also split the difference, if they don’t want to hurt their relationship with cable companies, and negotiate for ISPs to allow customers to add HBO GO subscriptions to their internet plan for $12. It still leaves out students who get their internet free through college dorms, but opens it up to customers that want to pay cable companies for internet and want to pay for HBO, but don’t want to pay for standard TV. The cable companies already charge a premium to internet subscribers who don’t also subscribe to TV, but this might make the transition more palatable.

  2. Kyle S says:

    AOL is owned by TW, who while no longer owns an MSO still has a huge investment in their success by means of its ownership of various other media properties. While HBO may be able to survive unbundled, many of its other properties likely would not.

    Disney faces the same issue with ESPN – a property that is obviously strong enough to stand alone but that is used as a carrot to drag along a host of other properties. If HBO and ESPN were unbundled, I have no doubt that cord cutting would soar, which is what TW and Disney execs fear.

  3. BeenRipped says:

    TimeWarnerCable charges $16 ($15.99) for HBO in Raleigh, NC.

  4. Brett says:

    The cable relationship is about more than just the money they receive. The cable providers also handle all billing, all the customer service issues, and just about everything in the distribution aside from HBO GO (HBO’s co-President Eric Kessler talks about it in a video interview). HBO would have to set-up all of that stuff to distribute HBO GO as a separate thing, all on a gamble that it might give them money enough to make the potential damage to their relationship with the cable providers worth it.

    I honestly don’t think that money is there, not yet. People with broad-band only are rare in the US, at less than 5% of households. 70% of people with broadband also have Pay-TV. International audiences are a different matter, but many of them also have less money to pay for a subscription.

  5. Brett says:

    Actually, I got that wrong. 70.8% of U.S. households have both Pay-TV and Broadband. People with broadband-only are 4.5% of US households, and while they grew significantly in 2011 (22%), it’s easier to grow from such a small base.

  6. CdrJameson says:

    They do sell unbundled products – they’re called DVDs

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