Don't Plan on A La Carte HBO Go Anytime Soon

• The Atlantic, Thursday, May 10, 2012 10:02 AM

Why can’t you buy a subscription to a digital streaming service like HBO Go without being a cable TV subscriber? Because HBO would put its relationship with the cable TV providers in jeopardy, and the cable TV providers supply
parent Time Warner with the bulk of its revenues.

As Gabriel Rossman points out in a column in The Atlantic: “Cable is a total cash cow and a more flexible business model means lower revenues.” Cable’s business model involves bundling channels in addition to offering premium channels like HBO for an added fee. Time Warner, HBO’s parent, has a business model that involves getting as many of its channels -- including HBO -- onto cable TV packages as it can, for which it receives carriage fees. Time Warner might make lots of money from HBO subscriptions, but it makes even more from carriage fees. That means if HBO were to go rogue, it would put Time Warner’s carriage fees in jeopardy, because most of the rest of its networks are not in high enough demand to live outside of a cable bundle. As Rossman says, letting HBO sell directly to consumers would be akin to Disneyland selling a la carte tickets to Splash Mountain for $20 without requiring the $80 park admission fee. The current model, he adds, sets the consumer up for “a perfect storm of price discrimination.”

Unfortunately, the market is not yet able to demand change. The target market for a la carte HBO Go would be households with broadband but no cable TV, which is only about 5% of the U.S. total. Unfortunately, Rossman says, this is dwarfed by the 20% of households that have cable but no broadband. Moreover, of the 70 percent of households that have both, most aren’t familiar enough with streaming video through devices like Xboxes and Blu-Ray players to recognize that they could cut the cord, anyway. In other words, don’t hold your breath on a la carte HBO Go happening anytime soon. 

Read the whole story at The Atlantic »