The HBO Dilemma

Last night, The Wall Street Journal confirmed what many of us had already suspected: that HBO has no intention of actually selling its new streaming service itself, but rather, is planning to outsource that function to either the MVPDs, who'll sell it as part of their broadband service or to device manufacturers like Roku, who’ll sell it as an add-on service.

Either way, HBO is not going to get its hands dirty with things like customer service and bill collection.

On the surface, the new OTT service should be a gold mine: HBO can price it below the cost of a monthly subscription through the MVPDs while structuring the deals to ensure they get a larger share of the revenue. They’re powerful enough now to do that.

Or are they? Because there’s a not-all-that-unlikely scenario that has HBO losing money on their shiny new streaming HBO On The Go service.

That scenario plays out like this: while the MVPDs have made it really difficult to pull out of your HBO package, the new OTT service will be attractive enough to get a lot of customers to pull the plug on the MVPDs and switch over.

And once they’re there, they’ll realize something many of us figured out fifteen years ago, back in the Sopranos days: there isn’t a whole lot of reason to subscribe to HBO for 12 months a year. Unlike Netflix, HBO doesn’t have a huge back catalog of content. They’ve got some pretty good movies, but so do Amazon and iTunes and at least theirs are first run. So a lot of people aren’t going to see the need to keep on spending ten or twelve dollars a month once they’ve seen the latest season of Game of Thrones. And thanks to binge viewing, that may take them all of three weeks.

And the thing is, it’s going to be really easy to unsubscribe from a Roku or Xbox type standalone service. Navigate to the web site, click a few boxes and you’re out.

Compare that to unsubscribing from HBO on your MVPDs service and you’ll see why I’m concerned. To begin with, the MPVDs have structured their offerings around the notions of different “levels” of service. So if you have the Titanium level package, you get the fastest internet speeds and all of the premium channels (HBO, Showtime, Cinemax, etc.)  Remove a piece from that titanium stack and the deal collapses and your monthly price goes way up. And since you’re not really sure how much of the hundred plus dollars a month you pay your MVPD actually goes towards getting you HBO, the impulse had been to just leave it alone, not to mess with the package.

But if the streaming service starts to look too good to pass up, a lot of people are going to decide to put up with the hassle of pulling out of the MVPDs program. And those formerly full time subscribers may quickly turn into part time ones.

HBO should be worried precisely because it’s going to be so easy to subscribe and unsubscribe. The MVPDs and their byzantine policies gave them a fairly stable customer base. But HBO wanted to give consumers choice, and choice is great and all that. Until someone decides to use their choice against you.

Caveat emptor.

UPDATE: TUESDAY, APRIL 7, 2105: HBO Now launched today and does not appear to have any type of contract restrictions: you can drop it any time you want.