HBO Still Doesn’t Get It

[nfotiu]

HBO has started kind of, sort of offering hbogo without requiring paying for a tv package in the US. I have Verizon FIOS and dropped the TV portion at the end of last year. It was going to $80 for just 50/25 internet. But they offered me $75 for internet plus agreeing to take local TV channels. And the local tv added no additional fees as they didn't require or even allow a set top box with that package, just go the channels with clear QAM. Then I just got an email for adding HBO for $9/month for the year, and I signed up. Seeing as how there is no set top available for my package, they are obviously selling it as an HBOGO only offering. Seems like HBO is tinkering with skirting the spirit of their agreements with the cable companies to offer it kind of standalone to providers who will play with them.

[Azure]

Time Warner released numbers for HBO today for the first time, revealing that the network generated $1.2 billion in revenue in the last quarter of 2013, and $4.9 billion for the whole year. Those are the numbers of a very healthy business, and that's why Time Warner decided to publish them, citing "transparency into the business."

"HBO remains in a league of its own," Time Warner CEO Jeff Bewkes reportedly said on the company’s earnings call. "We don’t see any discernible effect on HBO’s subscriber numbers or pricing because of Netflix or other internet video subscription services."

Bewkes was hoping to reassure investors that internet video isn't a threat, but the takeaway seems to be just the opposite. HBO had a record year, and its numbers look much better than Netflix's right now. Its operating margins are almost five times better than Netflix's, and it has almost three times as many global subscribers and a robust business in retransmission fees. There is no disputing that HBO is significantly more profitable than Netflix.

Netflix, however, is growing much faster. It generated almost as much revenue as HBO in the last quarter of 2013 — $1.2 billion for the quarter — from a much smaller user base, and it's closing the gap on the annual revenue as well, with $3.75 billion for the year. Netflix is also aggressively expanding around the world, recently taking out a $400 million loan to invest in original content and the European market, and gained as many new US subscribers in one quarter as HBO gained in a year. Time Warner may want you to believe otherwise, but this is a story of Netflix rising.

http://www.theverge.com/2014/2/5/538...-par-with-hbos

[nfotiu]

Originally Posted by Azure

http://www.theverge.com/2014/2/5/538...-par-with-hbos

I don't know how sustainable Netflix's business model is. I am not sure where their room for growth is. It seems like their licencing costs will only go up, squeezing that profit margin even further. They will soon tap out the market in the US, and growing overseas is their only real growth opportunity. HBOs profitability advantage seems insurmountable since they are not licencing nearly as many 3rd party series and movies. HBO's model will translate just fine if cord cutting really takes off since most people pay a la carte for it anyway, and already most American's can already get HBO without paying for a tv package anyway through their broadband company.

I don't even know that the two companies are competitors, I imagine for most cord cutters, they'd be considered complimentary offerings.

Currently, though, if I was betting on their futures, I would bet on HBO remaining the more profitable company for years to come since they have established themselves as a premium brand that people are willing to pay more for content that costs them less.

[RW99]

Well increasing the monthly rate for Netflix will sure help. Maybe they keep getting good original programming and rates keep going up to the point where it is almost the same as HBO? Or maybe a two tier model, so for a higher price you get the exclusives or quicker access to new seasons of TV shows?

One day HBO will change their distribution method and I will probably line up to buy it. But I will not spend over $50/month just to get HBO in HD (as I don't have cable now) and I have no desire to buy their DVD's just so I can watch something once, a year later with everyone else already done and possible spoilers already been given.

[corporatejay]

Originally Posted by RW99

Well increasing the monthly rate for Netflix will sure help. Maybe they keep getting good original programming and rates keep going up to the point where it is almost the same as HBO? Or maybe a two tier model, so for a higher price you get the exclusives or quicker access to new seasons of TV shows?

One day HBO will change their distribution method and I will probably line up to buy it. But I will not spend over $50/month just to get HBO in HD (as I don't have cable now) and I have no desire to buy their DVD's just so I can watch something once, a year later with everyone else already done and possible spoilers already been given.

I'm sure HBO knows this too, they know they will change one day, but that day isn't now. They clearly see this as more profitable but to suggest they aren't looking long term and coming up with strategies for "cord cutters" would be ridiculous.

[Azure]

Originally Posted by nfotiu

I don't know how sustainable Netflix's business model is. I am not sure where their room for growth is. It seems like their licencing costs will only go up, squeezing that profit margin even further. They will soon tap out the market in the US, and growing overseas is their only real growth opportunity. HBOs profitability advantage seems insurmountable since they are not licencing nearly as many 3rd party series and movies. HBO's model will translate just fine if cord cutting really takes off since most people pay a la carte for it anyway, and already most American's can already get HBO without paying for a tv package anyway through their broadband company.

I don't even know that the two companies are competitors, I imagine for most cord cutters, they'd be considered complimentary offerings.

Currently, though, if I was betting on their futures, I would bet on HBO remaining the more profitable company for years to come since they have established themselves as a premium brand that people are willing to pay more for content that costs them less.

It really depends on what Netflix will do. They currently pay more than $1.3B per quarter to license content. This price will keep going up since Hollywood knows they can gouge Netflix and they'll have to keep paying. But on the other hand, Netflix is starting to make a lot more of their own content, which they can do at a lot cheaper price than it costs to license other stuff.

That SHOULD help them increase their user base.

But really, nobody knows what will happen. All we know is that people want a simple way to watch TV, and Netflix provides that for the most part. But the definite problem is the licensing costs of other stuff people demand to watch.

[getbak]

Netflix pays $1.3B per quarter to licence content, but they only generate $1.2B per quarter in revenue?

That doesn't seem like a recipe for success.

[Azure]

Originally Posted by getbak

Netflix pays $1.3B per quarter to licence content, but they only generate $1.2B per quarter in revenue?

That doesn't seem like a recipe for success.

There are actually a variety of numbers available.

IIRC, the $1.3B per quarter came from BI, but Techcruch reports this as of last year.

- More notably, they’re spending $2 billion per year on content licensing and original shows. The “vast majority” of this spending goes to licensing movies and prior-season TV shows, with a much smaller chunk of it going to their recent original content efforts.

http://techcrunch.com/2013/04/24/net...-and-tv-shows/

Not so terrible after all. Obviously still a concern, especially with the prices continuing to rise, but manageable.

Plus, they actually turn a profit so it is not like they are losing money. Similar to Amazon, who turns a small profit, and sticks a lot of money back into the company to make it better.

Netflix is all about growth right now.

[Mike F]

Originally Posted by RW99

Well increasing the monthly rate for Netflix will sure help. Maybe they keep getting good original programming and rates keep going up to the point where it is almost the same as HBO? Or maybe a two tier model, so for a higher price you get the exclusives or quicker access to new seasons of TV shows?

Do you not recall the intense backlash the last time Netflix contemplated a fee increase? Subscribers were livid and the company had to do some serious backtracking.

[RW99]

Originally Posted by Mike F

Do you not recall the intense backlash the last time Netflix contemplated a fee increase? Subscribers were livid and the company had to do some serious backtracking.

No, wasn't around for that. Looks like they tried to increase by 60%. Latest articles around New Years talking about different price points for multiple users on one account.

I don't see why a small price increase would be such an issue, it wont stay at this price forever.

[bubbsy]

i think netflix needs to prepare for cable company competition very soon. i know rogers/telus are already well on their way on developing similar services in their product portfolios, just need to see how they integrate this into their packages/pricing.

[CaramonLS]

Originally Posted by corporatejay

I'm sure HBO knows this too, they know they will change one day, but that day isn't now. They clearly see this as more profitable but to suggest they aren't looking long term and coming up with strategies for "cord cutters" would be ridiculous.

Lest we forget blockbuster was offered a chance to partner with Netflix and also buy them out. I wouldn't be so quick to assume intelligence.

[Azure]

Originally Posted by CaramonLS

Lest we forget blockbuster was offered a chance to partner with Netflix and also buy them out. I wouldn't be so quick to assume intelligence.

Pretty sure that was while Netflix was primarily a DVD shipping business and Blockbuster was their direct competition.

[corporatejay]

Originally Posted by CaramonLS

Lest we forget blockbuster was offered a chance to partner with Netflix and also buy them out. I wouldn't be so quick to assume intelligence.

Not the same. Blockbuster didn't have original content that people are willing to pay for.

HBO will move to a streaming service when they feel pulling away from the relationships they have with the cable companies is no longer the most profitable method of distribution.

As was mentioned in an earlier article posted here, they are aware of the benefits of streaming, but as of right now, they basically only produce content. Advertising, carrying costs, delivery method, billing etc... is all handled by the cable company. The article on this page references the fact that netflix has 5x times the operating costs.

[WilsonFourTwo]

Originally Posted by RW99

No, wasn't around for that. Looks like they tried to increase by 60%. Latest articles around New Years talking about different price points for multiple users on one account.

I don't see why a small price increase would be such an issue, it wont stay at this price forever.

I completely agree. I almost feel like I'm robbing Netflix every month and would have ZERO problem paying another $1. Even $2 would be OK in my book.

Interestingly, there's a new Canadian survey (Toronto Star) that showing 90% of respondents find the $8 monthly fee Excellent or Good value.

[Azure]

IMO they shot themselves in the foot with the lower price to begin with. People would have no problem paying $10/month for their service, but once you pay $8/month, then having the price increase to $10, it could create a problem.

Another $2 dollars per month would net them an additional $80 million in profit. Not a bad idea if they feel people wouldn't have a problem with it.

But, I think the different price points for different amounts of users is a better idea. Even charging $2 more to have access to their own original content might work.

[WilsonFourTwo]

Originally Posted by Azure

IMO they shot themselves in the foot with the lower price to begin with. People would have no problem paying $10/month for their service, but once you pay $8/month, then having the price increase to $10, it could create a problem.

I agree, but....how often do you open your Shaw/Telus/Bell bill to discover changes to their pricing? Consumers hate those changes but they don't abandon the service in large numbers.

Originally Posted by Azure

But, I think the different price points for different amounts of users is a better idea. Even charging $2 more to have access to their own original content might work.

This is bang-on and probably what happens next. HBO forces a fee for their content and I can't see why Netflix couldn't either, especially since its of equal quality!

You know what I would pay extra for? Access to TV shows immediately after their broadcast premiere.

[Flash Walken]

Originally Posted by WilsonFourTwo

I agree, but....how often do you open your Shaw/Telus/Bell bill to discover changes to their pricing? Consumers hate those changes but they don't abandon the service in large numbers.

This is a result of a monopoly, not a result of consumer indifference.

If there was an option, most consumers would likely switch and the offending company would have an uphill battle to reclaim their business.

I think you see this in the automotive industry. People will follow their brand loyalty until the point where they feel like they've been screwed over, then, they make the jump from Ford to Toyota after cursing for years that they'd never drive a Toyota.

[Erick Estrada]

There's a limit I would pay for Netflix. I find it fair value right now but given the movie selection I wouldn't want to pay more than $12 a month for the service as I can go long stretches without using it.

[fredr123]

Bump!

http://insidetv.ew.com/2014/10/15/hb...aming-service/

HBO plans to launch stand-alone streaming service in USA in 2015.

Plepler ran down three potential distribution models for the streaming service. The first is to sell the online-only service through HBO’s existing cable providers. (For example, if you have broadband service through Time Warner or Comcast and want the network’s streaming service, you would be able to purchase the online service without having any cable channels.) The second is to distribute the service via new partners like Amazon, Google or Microsoft. The third method would be to attempt the Netflix model, whereby HBO markets its streaming service direct to consumers and skips the middlemen.