No bar­gains on­line from Show­time, HBO

Los Angeles Times - - BUSINESS - DAVID LAZARUS

There’s only one rea­son most pay-TV view­ers in South­ern Cal­i­for­nia aren’t watch­ing Dodgers games: They’re too ex­pen­sive.

Time Warner Ca­ble, which has ex­clu­sive dis­tri­bu­tion rights for the games, wants other pay-TV com­pa­nies to charge sub­scribers as much as $5 a month for its Dodgers chan­nel. Providers such as DirecTV and AT&T, which would re­ceive about a third of that amount, say $5 is too pricey for their cus­tomers.

But what if you could cut out the mid­dle man and get the Dodgers chan­nel streamed di­rectly to your home via the In­ter­net? Wouldn’t that bring the monthly cost down to a more rea­son­able $3? Prob­a­bly not. And this il­lus­trates a key prob­lem for con­sumers as con­ven­tional pay-TV ser­vices col­lapse un­der their bloated weight and peo­ple in­creas­ingly switch to on­line ser­vices such as Net­flix, Hulu, HBO Now and a new Show­time ser­vice an­nounced last week.

De­liv­er­ing movies and

TV shows over the In­ter­net might be cheaper and eas­ier for con­tent providers, but an­a­lysts say con­sumers shouldn’t ex­pect the likes of HBO and Show­time to pass along their sav­ings to sub­scribers.

“As long as they have con­tent that peo­ple want, they’re not go­ing to lower their prices,” said Jim Nail, prin­ci­pal an­a­lyst at For­rester Re­search. “That would be like giv­ing away money.”

Or, to put it an­other way, he said: “Go find ‘Game of Thrones’ some­where else. Oh, gee, you can’t. You want it? You pay for it.”

Show­time says its stream­ing ser­vice will de­but in July and will cost $10.99 a month.

HBO Now is avail­able for $14.99 monthly. Th­ese are pretty much the same prices charged by pay-TV compa- nies.

CBS, the par­ent com­pany of Show­time, of­fers a stand-alone stream­ing ser­vice for $6 a month, and the pre­mium net­work Starz re­port­edly is get­ting set to launch its own on­line of­fer­ing.

In most other mar­kets, cut­ting out the mid­dle­man and tak­ing ad­van­tage of high-tech ef­fi­cien­cies re­sults in sig­nif­i­cantly lower prices for con­sumers.

Buy­ing three-month sup­plies of pre­scrip­tion drugs by mail, for ex­am­ple, will pro­vide big sav­ings for pa­tients.

Low-over­head, on­line pur­chases are gen­er­ally less ex­pen­sive than bricks-and­mor­tar store prices. Ex­hibit A: Ama­zon.com’s dev­as­ta­tion of book­stores.

And look at mu­sic. Last year, rev­enue from cheaper mu­sic down­loads and sub- scrip­tions over­took sales of CDs and other phys­i­cal for­mats for the first time.

Yet when it comes to pre­mium video con­tent, an­a­lysts say, con­sumers should ac­cus­tom them­selves to pay­ing the go­ing rate, re­gard­less of how they get the pro­gram­ming.

A big rea­son for that is be­cause HBO, Show­time and other ca­ble net­works still re­ceive the bulk of their cash from con­tracts with pay-TV com­pa­nies, said Deana My­ers, prin­ci­pal an­a­lyst with SNL Ka­gan.

“They don’t want to cut into that busi­ness,” she said. “That’s their bread and but­ter, and they don’t want to ruin it.”

The last thing HBO and Show­time want is to pro­vide a fi­nan­cial in­cen­tive for peo­ple to cut the ca­ble cord, she said. Rather, they want to find a way to reach the es­ti­mated 10 mil­lion homes that have In­ter­net ac­cess but no ca­ble or satel­lite ser­vice.

“They’re tar­get­ing new peo­ple,” My­ers said. “They’re not try­ing to get peo­ple to switch.”

Rep­re­sen­ta­tives of HBO and Show­time told me that they still have part­ners, such as Ap­ple, to help with billing for their on­line ser­vices.

But they clammed up when I asked if Ap­ple gets as much as the roughly 30% cut that pay-TV com­pa­nies re­ceive.

As for pric­ing, the two net­works say they’re com­fort­able with how much they’re ask­ing from sub­scribers.

“We be­lieve $14.99 to be the ap­pro­pri­ate cost for HBO Now,” said Jeff Cus­son, an HBO spokesman. “This pric­ing is con­sis­tent with all ways some­one can sub­scribe to HBO.”

Tr­isha Car­doso, a Show­time spokes­woman, said “ex­ten­sive mar­ket re­search” was con­ducted to de­ter­mine that $10.99 “was op­ti­mal in terms of the per­ceived price/ value re­la­tion­ship cus­tomers placed on the Show­time ser­vice.”

That says prices of pre­mium chan­nels won’t be go­ing down any time soon. But con­sumers can ex­pect some re­lief in the form of smaller, cheaper pay-TV bun­dles.

Dish Net­work’s Sling TV seems like the model that oth­ers will fol­low. For $20 a month you get about 20 chan­nels, in­clud­ing AMC, CNN and ESPN. Ad­di­tional groups of chan­nels can be added for $5 each.

Ver­i­zon’s FiOS ser­vice fol­lowed with its so-called skinny bun­dle, start­ing at $55 a month, and Ap­ple is said to be cooking up some­thing sim­i­lar.

“If the ca­ble and satel­lite com­pa­nies want to com­pete with stream­ing ser­vices, they’ll have to of­fer new prod­ucts,” said For­rester’s Nail. “Sim­ply be­ing the gate­keeper to hun­dreds of chan­nels is no longer good enough.”

Seems to me the pay-TV com­pa­nies are go­ing to have to get pretty darn cre­ative.

With HBO and Show­time stream­ing on­line, even at in­flated prices, cut­ting the cord has never looked so en­tic­ing.

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