It’s happening before our eyes. The cable business as we know it is in retreat and an a la carte world, streamed over-the-top, is dawning.
The announcement by HBO on Monday that it will start streaming a standalone service on Apple’s iTunes in April is a watershed moment for premium content companies. For $14.99 people who don’t have cable or satellite service will still be able to get HBO programs.
It’s hard to believe that other premium cable networks will not follow, and Les Moonves reminded the world on Wednesday that Showtime is indeed on the path to an over the top option.
The cable companies had better get used to it, Time Warner CEO Jeff Bewkes essentially told an investor conference on Tuesday.
“Most of our distributors are on board with us, and they’re going to push it,” he said. “We have some that think that it’s competitive with them and they wish that they could maintain the sole place to get an HBO.”
Well that’s not going to happen. This comes on the heels of other changes among the cable bundles, including companies like Comcast offering lower-priced packages to subscribers who are pushing back on $200 per month cable bills.
Moonves spoke at the same conference where Bewkes appeared, and stated the truth: “The days of the 500-channel universe are over,” he said. “People are going to be slicing it and dicing it.”
Meanwhile the content companies need to move fast since cable companies are starting to push back against those networks that are not delivering the audience anymore. The New York Times plumbed chapter and verse of the cable company Suddenlink dropping Viacom channels including MTV, Comedy Central and Nickelodeon.
Suddenlink is relatively small but as the Times pointed out, “The drawn-out dispute between Viacom and Suddenlink — now in its sixth month — is a sign of the deep tensions erupting across the industry. Big television and cable companies occasionally engage in short but intense battles over contract negotiations that gain national attention, with some producing serious programming blackouts.”
The ripple effects will continue to play out. Viacom’s declining ratings may lead other cable operators to drop the service from main bundles.
So if you’re a content company, you need options. And if you’re a premium creator and owner of content like HBO, you have good ones.
Enter streaming. HBO has long been on the front lines of adapting to digital disruption, including introducing HBOGo.com to make content available to subscribers anytime.
What HBO is doing with its Apple deal is tapping into some 10 million potential subscribers who are cable-nevers, millenials who do not subscribe to cable and probably never will. Some of those are people who want to watch “Girls” and “Veep” and “Game of Thrones,” and can’t get it on Netflix.
“This is a transformative moment for HBO,” said CEO Richard Plepler during the unveiling of the announcement at Apple’s vast Yerba Buena auditorium.
He’s right. At 31 million U.S. subscribers (45 million if you include Cinemax), HBO will not grow if it does not find other ways to monetize its programming. And as the Suddenlink example shows, the blood is in the water for content companies that are wedded to cable distribution. CBS won its standoff with Dish last December, which followed a head-to-head battle between CBS and Time Warner Cable in 2013.
Meanwhile, CBS has started its own over-the-top, standalone service, though it’s less clear what the demand will be for that.
As the Times wrote, subscribers are less and less willing to pay for content they don’t watch.
The interesting result of this is that Netflix and HBO — which quietly hate being compared to one another — are increasingly starting to look like siblings. HBO is now offering a streaming service for its premium content, while Netflix continues to create premium content to add sizzle to its streaming service.
After CBS and HBO, who will be next to go over-the-top? A Showtime executive says their service is coming “soon.”
“I think it’s going to sift out,” said an HBO executive. “There’s a lot of services that are not profitable that cable operators are carrying. They don’t want all the services. They’re going to say they don’t want to pay for all these things.”
But not every content creator will make it in this brave new standalone world.
As this executive put it: “I don’t know if these channels can survive in broadband universe by charging $2 a month.”
It’s survival of the most premium.
Editor’s Note: A previous version of this story incorrectly said that Time Warner Cable lowered its price for HBO in response to HBO NOW. According to a spokeswoman, TWC offered the $9.99 price as a promotion in October. TheWrap regrets the error.