Peter Kafka

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You Might Be Able to Pay for HBO Without Paying for Cable. But You’re Still Going to Pay the Cable Guy.

Jeff Bewkes

Jeff Bewkes

You say you love HBO — or the idea of HBO — but you don’t want to pay for other TV networks in order to watch it?

Well, maybe, possibly, that could happen. One day.

But you’re still going to end up handing over money to the people who sell pay TV.

That’s the scenario that Time Warner’s HBO has been floating for a while now. And, last week, Time Warner CEO Jeff Bewkes brought it up again.

This notion tends to excite people who are eager to hear any idea they think could help chip away at the TV Industrial Complex, which has turned out to be quite sturdy.

But just to spell it out — because people tend to get confused by this stuff — Bewkes and his lieutenants are not talking about selling HBO directly to you, the way Netflix sells its programs. They’re talking about selling it through Comcast, or Verizon, or Time Warner Cable, or whoever delivers your broadband Internet — and who also sells pay TV.

The distinction is important to you, the would-be HBO subscriber, because it means you’ll pay a significant markup on the monthly price that Comcast, or Verizon, or Time Warner Cable pays for HBO. And depending on how much Internet pipe you end up using when you watch HBO and other Web video, you may end up paying more for broadband, too.

It’s even more significant for Bewkes and Time Warner, because that company is most concerned about keeping the TV Industrial Complex up and running. So letting its pay TV vendors sell some broadband-only HBO as well is a way of telling the pay TV guys that Time Warner is most concerned with keeping them happy, and keeping their primary relationship intact.

Yes, you can also see it as the theoretical first step toward the Great Unbundling, where people actually pay for discrete channels of content instead of a mega-package of TV. But Time Warner’s entire business model is now based on video bundling, and they are in no hurry to start tearing that down.

Again, we’ve walked through this several times in the past, but it doesn’t hurt to keep repeating it. This time we can do it via Bewkes’s words themselves. Here’s an edited transcript of his talk at Goldman Sachs’ Communacopia Conference from last Wednesday:

Goldman analyst Drew Borst: Is there a potential for the model to offer HBO Go bundled with a broadband and a data service from a distributor? Is that something you think is likely in the near term? Is it something you would like to pursue?

Bewkes: We would be very interested in it. I mean, the key thing you’re saying, I think, is that if you’re doing that, your distributor is helping you to do it with quality. So you could then develop a good broadband delivery of HBO, with good marketing push by that, and not undermine the plant that they are trying to maintain to deliver good HBO, broadband, HD, mobile — you know, all of that.

What’s interesting, though, if you had one of the distributors sitting here — and I think why that’s interesting is you often hear that question about, quote, “over the top,” as though there’s a real opportunity for the people who have broadband but not TV …

Well, let’s hold and look at market size. The number of those people — it’s five million or 10 million people; if you take out really old people, it’s probably five to six. That’s one market, that’s the “over the top” broadband-only market.

If you look at the number of households, [there are] 70 million in America that don’t have HBO, but do buy [pay TV]. So, if you are asking us at HBO, well, who — where do you think the likely next subscriber is — is it the 70 million homes that have brought 200 channels and stuff, and they haven’t bought HBO? Or is it five or 10 that didn’t buy either HBO or [pay TV]? I mean, it’s pretty obvious. It’s the 70 million homes.

So we are working more on that. If a way to get them is a broadband offering, our distributors would be properly interested in that. But they haven’t yet done that.


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