{"id":17634,"date":"2016-11-18T12:47:17","date_gmt":"2016-11-18T17:47:17","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/hbo-now-its-not-tvits-transforming-tv\/"},"modified":"2016-11-18T12:48:27","modified_gmt":"2016-11-18T17:48:27","slug":"hbo-now-its-not-tvits-transforming-tv","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/hbo-now-its-not-tvits-transforming-tv\/","title":{"rendered":"HBO NOW \u2013 \u201cIt\u2019s Not TV\u2026It\u2019s Transforming TV\u201d"},"content":{"rendered":"

\u201cWe\u2019ve had 80 years of linear TV, and it\u2019s been amazing\u2026and in its day, the fax machine was amazing. The next 20 years will be this transformation from linear TV to Internet TV. [Netflix and HBO] will be like the Yankees and the Red Sox. I predict HBO will do the best creative work of their lives in the next 10 years because they are on war footing.\u201d<\/em><\/p>\n

Reed Hastings, Netflix CEO<\/em><\/p>\n

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HBO has long marketed itself using the slogan \u201cit\u2019s not TV. It\u2019s HBO.\u201d Although maybe slightly exaggerated, no other network has the credentials to back it up quite like HBO, offering consumers a wealth of content that is unmatched \u2013 movies (releases from three of the top six Hollywood studios<\/em>), original series (the most Emmy nominations for 16 straight years<\/em>1<\/sup>), as well as a plethora of other award-winning programming (e.g., documentaries<\/em>).<\/p>\n

\"its-not-tv-its-hbo\"<\/p>\n

This content advantage has differentiated HBO not only in terms of the value it created for consumers, but also with the value it has captured from them \u2013 in 2015, it generated $5.6B in revenues and $1.9B in operating income2<\/sup>. \u00a0However, despite this, HBO was still just \u201cTV\u201d to most consumers \u2013 operating within the traditional Pay-TV ecosystem, requiring consumers to pay for an expensive bundle of channels to access its content.<\/p>\n

HBO has traditionally retailed as a \u201cpremium\u201d network \u2013 meaning consumers must pay an additional monthly fee (between $10 – $20) on top of what they pay their Pay-TV provider (e.g., Comcast) for a basic package of channels.\u00a0 As such, HBO generates most of its revenue through \u201caffiliate pacts\u201d with each provider.\u00a0 While each of these \u201cpacts\u201d is structured slightly differently, the fundamental operating model behind them is the same.\u00a0 HBO packages a library of content and passes it onto providers in different forms (e.g., channels), who then re-package it within their systems and deliver to consumers.<\/p>\n

Historically, this model has been wildly successful for both HBO and providers. \u00a0HBO focuses on what it does best \u2013 great content \u2013 leaving many key operations, such as CRM (e.g., customer service) and technology to providers.\u00a0 Providers invest heavily in infrastructure to service homes, keeping competitors out, and own the relationship with consumers – leaving them with no other way to access HBO\u2019s content.\u00a0 However, left out of this successful relationship was consumers.\u00a0 They were trapped within the ecosystem. \u00a0But if they wanted access to quality programming, like HBO, what other option was there?<\/p>\n

Enter Internet.<\/p>\n

As access proliferated and speeds improved, new \u201cover-the-top\u201d streaming services emerged, offering consumers access to quality content through more convenient access methods (e.g., smartphone). \u00a0Pay-TV bills continued to rise and quality improved on streaming services, prompting many consumers to \u201ccut the cord\u201d in favor of these new offerings. \u00a0In 2016, only 82% of households subscribed to Pay-TV services, down from a high of 87% in 20053<\/sup>.<\/p>\n

Sensing a tremendous opportunity, Netflix went on a full-blitz to disrupt the Pay-TV ecosystem. Netflix Chief Content Officer, Ted Sarandos, even went as far to say \u2013<\/p>\n

“The goal is to become HBO faster than HBO can become us<\/em> 4<\/sup>“<\/em><\/p>\n

Netflix has spent billions annually to add content to its service \u2013 both licensing and developing original content \u2013 and consumers have responded.\u00a0 As of Q3 2016, Netflix is on pace for over $8B in revenues from 49M domestic subscribers \u2013 more than any cable and premium network5<\/sup>.<\/p>\n

Taking note of Netflix\u2019s incredible scale, and feeling the heat themselves, HBO was faced with a burning dilemma \u2013 how should it adapt its operating model to continue to create and capture value in this evolving TV landscape?\u00a0 On one hand, Netflix would continue to pose a serious threat, and demonstrated the growth that exists outside the traditional ecosystem.\u00a0 But HBO\u2019s current model was extremely lucrative. \u00a0How would Pay-TV providers, who generate virtually all of HBO\u2019s revenues, react to a move that bypasses them? No other network had taken that risk.<\/p>\n

In 2014, HBO decided the risk was worth the reward and set out to develop its own \u201cover-the-top\u201d offering to consumers.\u00a0 However, rather than develop the in-house capabilities it had always relied on providers for, which would have taken an estimated three years and cost upwards of $900M, HBO found new partners (MLB Advanced Media, Apple) to do the heavy lifting for them6<\/sup>.<\/p>\n

This allowed HBO to get to market in under a year, and in 2015, the company unveiled HBO NOW \u2013 a standalone version of the network giving users access to its complete library of content without requiring a Pay-TV subscription.<\/em>\u00a0 With NOW, HBO further differentiated itself within the TV industry by creating a new type of value for consumers \u2013 through access, convenience and price rather than strictly content. \u00a0To date, NOW has captured almost 1M additional subscribers and many other networks have quickly followed7<\/sup>.<\/p>\n

\"hbo-now-access\"<\/a><\/p>\n

Moving forward, I hope HBO continues to push the envelope in creating new value for consumers \u2013 beyond NOW, within the traditional ecosystem. \u00a0Shifts in behavior have signaled that the days of traditional Pay-TV are not necessarily over, but they are changing rapidly.\u00a0 HBO\u2019s content advantage positions it to be a driving force behind this change. \u00a0Consumers want more choice in how they receive content, and it\u2019s up to networks and providers to deliver \u2013 or they will continue to face threats to their existence.<\/p>\n

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