Apple, HBO— a dream stream?
Firms team up to offer Net TV
HBO has linked with Apple for the start of its much-anticipated Internet streaming service, uniting two premium brands from the media and technology worlds in a quest to reinvent the way people watch television.
Called “HBO Now,” the service does not require a traditional TV subscription and will be available exclusively on Apple devices when it makes its debut in early April, the companies announced last week during an Apple product event at the Yerba Buena Center in San Francisco.
Timed to coincide with the start of the new season of its most-watched series, Game of Thrones, the service will cost $14.99 a month and offer all of HBO’s original programming, past and present, as well as its movie offerings. People who subscribe to the service in April through Apple will receive the first month free.
The exclusivity with Apple lasts for three months. HBO also is in talks with other distributors, including traditional TV providers and digital partners.
“This is a transformative moment for HBO,” Richard Plepler, HBO’s chief executive, said from the stage of the Apple event.
Anticipation for HBO’s new digital streaming service has been growing since October, when the company announced plans to start an Internet offering. The new service steps up its rivalry with digital-first streaming outlets like Netflix and Amazon. It also puts more pressure on the established television business, which takes in $170 billion a year in revenue.
“This is a wake-up call to the industry,” said Rich Greenfield, a media analyst with BTIG Research. “HBO is taking its future into its own hands.”
The new service is part of a growing wave of offerings this year from media, telecom and technology companies. Dish Network,
the satellite provider, recently unveiled a new Web-based service that includes ESPN and several other popular networks for $20 a month. CBS and Sony also are starting Internet-only subscription plans.
The companies are fighting to stay relevant to a generation of so-called cord-cutters or cord-nevers, who pay for Internet access but not traditional TV subscriptions. As its target audience for HBO Now, the network has pointed to the 10 million homes in the United States with Internet service but no traditional cable or satellite television subscriptions — half of which are estimated to subscribe to a streaming service.
“That is a large and growing opportunity that can no longer be ignored,” Plepler said.
The partnership with Apple came together at this time last year after HBO surveyed the market and decided that it was time to get into the streaming business. Plepler said he called Eddy Cue, the senior Apple executive in charge of brokering deals with media companies, and pitched the idea. Cue responded by saying that the timing was impeccable.
Both companies are hoping that they will benefit by being in the halo of the other. Apple will market the HBO service as part of its offerings, including its Apple TV product. The company said Monday that it had sold 25 million Apple TV devices and that it was cutting the price to $69 from $99.
HBO’s three-month exclusive with Apple applies only to other digital outlets — not the traditional cable, satellite and telecom companies that currently sell HBO as part of television bundles. HBO said that it was open to offering a stand-alone streaming service with those companies and that while some have been receptive, others have resisted.
“Deals with our distributors are never easy, but to quote from Godfather II, ‘This is the business we’ve chosen,’” Plepler said. “Our position to our partners is: Work with us. We want to help you grow your businesses.”
Some analysts said that while the $14.99 monthly price represented an attempt by HBO to carefully balance relationships with its current distributors, it also could be a tough sell when compared with the offerings at Netflix, which start at $7.99 a month.
“You had to get to a price point that your distributors couldn’t complain about,” said Michael Nathanson, a media analyst with Moffett Nathanson Research.
HBO declined to discuss details of the business relationship with Apple. Apple typically takes a 30 percent cut of revenue generated through apps, and it is unclear how that compares with its split with its traditional distributors.
The initiative is part of a broader growth strategy at Time Warner, which took on more importance internally after the company rejected an $80 billion takeover bid from Rupert Murdoch’s 21st Century Fox last summer. That strategy includes exploiting digital business opportunities, increasing original programming, expanding international business and cutting costs across its television and film properties, which also include Turner cable networks and Warner Bros. film studios.
With the new streaming service, Time Warner and HBO will need to tread carefully so as not to cannibalize their core businesses. Both HBO and other television networks in Time Warner’s portfolio depend on their relationships with cable and satellite companies for billions of dollars in revenue.
HBO and its sibling network Cinemax added 2.8 million subscribers in 2014, the most in more than 30 years. The two networks counted about 138 million worldwide subscribers, with about 46 million paid subscribers in the United States. Growth in subscription revenue and licensing fees for select original programming helped increase revenue by 10 percent, to $5.4 billion, at HBO last year.
In comparison, Netflix counted 59 million total paid members, 40 million in the United States.
“This is not about shortterm 2015 revenues,” Plepler said. “It is about a strategic move for our future and about building flexibility and optionality into our distribution. This is the right move at the right time with the right partner.”