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Summary:

Netflix CFO David Wells has some interesting advice for HBO: Become more like us, and you could be twice as big.

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HBO has long said that it has no plans to sell subscriptions directly over the internet, but Netflix CFO David Wells suggested Wednesday at a Goldman Sachs conference that the cable channel should rethink that decision. “We believe that if they were direct-to-consumer, there would be materially more subscribers that would pay for it in the U.S.,” Wells said.

Wells made that suggestion when asked about Netflix’s addressable domestic market, which he said was between 60 million and 90 million subscribers — a number that is just slightly below the roughly 100 million households that pay for TV services in the U.S. Netflix has made these estimates before — but this was the first time that an executive suggested that these numbers could be within reach for HBO as well if it decided to embrace standalone subscriptions.

HBO currently has around 28 million subscribers in the U.S, while Netflix came close to 30 million domestic subscribers in its most recent quarter. There have been a lot of discussions about HBO possibly offering online subscriptions without the need to subscribe to cable in the past, but the network has consistently said that it is not interested in that kind of distribution model.

Asked about why more people haven’t subscribed to Netflix yet, Wells said that not having connected devices could be one factor. But often, it comes down to something a lot simpler: “Folks just find it that valuable,” he said.

Netflix’s challenge here is that people may have subscribed in the past when the content offering wasn’t that great, which is why the company is now putting a lot more emphasis on showcasing its content in its marketing efforts.

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  1. Definitely agree. And, I neither own a television or obviously have cable. Given the mix of spending options for content however, it is critical to have a reasonable pricing structure.

    The current model simply makes me avoid content purchases in television. I am now two seasons behind Mad Men… Other shows come out a day late, and the cost is excessive. I’d get a television and cable at that point.

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  2. Looking at subscriber numbers is useless without considering subscription revenue. HBO currently gets about $17/subscriber/month from cable companies, not including extensive marketing support. The average customer would not pay anywhere near that much for monthly access to an online-only offering. Could they make that difference up with increased number of subscriptions? Not sure, considering their current content offerings beyond their marque original programming.

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    1. Cable providers get $15/month per subscriber. What HBO gets is another matter.

      If HBO is worth the money as a cable channel, then it’s worth that much as a streaming service assuming they still have the same content. The other subscription services don’t do recently released content. If the HBO streaming service mirrored it’s cable channel, it would immediately have something to distinguish itself from the other services.

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      1. Cable tv subscribers only pay $10/month to add HBO. I doubt that most people would want to pay much more than that for HBO alone. HBO’s best shows are absolutely first-rate, but the lion’s share of their programming is as mediocre as all the other cable channel’s.

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    2. Agreed. HBO/Time Warner execs are not idiots. If they could make more money by adding an online-only subscription service they would do it. The trick is that while they can’t make more money now at some point they will be able to. Pull the trigger too soon and you leave money on the table. Wait too long and Netflix/Amazon/Apple are going to eat your lunch.

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  3. He is saying this because it HBO does come out with a streaming only deal it won’t be $8 and Netflix will look cheaper by comparison, also it would cause headaches of Time Warner and it’s Cable partners.

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    1. Okay, what’s wrong with that argument? Right now to even subscribe to hbo you need extended cable.min is 50-60 plus cost of HBO your at 80-90 dollars a little much if your interest is HBO.

      So if your argument is that HBO charging 10 on it own makes Netflix look cheaper price wise, can you just imagine what it looks like right now . 7.99 vs $80…yes I cut cable 3 yrs ago and would suscribe to HBO in a heartbeat if they offered. A standalone version. take care

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  4. I’d pay the $15/month. Cheaper & more direct than paying cable $100 for HBO, since I don’t watch many shows offered through cable. In fact, paying for Netflix, plus an HBO streaming option would still be considerably less than cable. I simply enjoy HBOs material.

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  5. $15/month HBO + $8.99 streaming Netflix < $50+ cable package plus HBO, simple math, I'd do it. I like HBO. I cannot see a point in paying the price of cable so I can get HBO. Because once you buy cable, the only channels worth paying for are in the more expensive tiers and by then you are out $100 or more just so you could get HBO. If you ONLY buy cable for HBO, you will be out $45/month. And you'll have a lot of extraneous channels with nothing on taking up space.

    Instead I'm having to A. Illegally watch the current season (HBO gets nothing) or B. Pay for belated seasons way after they have aired. (right now, HBO gets my money once it's in box set form)

    Voluntary "Game of Thrones" fund, payable to HBO from all of your illegal viewers…I wonder what they'd do if we just mailed them money…

    In reality, I bet the legal reasons are an issue.

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  6. When cable goes ala carte like in Canada, I’ll get cable.

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  7. Cable tv subscribers only pay $10/month to add HBO. I doubt that most people would want to pay much more than that for HBO alone. HBO’s best shows are absolutely first-rate, but the lion’s share of their programming is as mediocre as all the other cable channel’s.

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  8. Frankly, it’s not that simple and, coming on the heels of Netflix’s recent original programming award wins, this smells a little like a PR play for Netflix to draw a comparison with HBO.

    Netflix doesn’t have the legacy business model (or related nuances) to consider in making such a broad statement, whereas HBO has an established and profitable revenue model, one which offering subscriptions over the Internet would, at a minimum, disrupt. Not something to do lightly.

    HBO’s stance of having “no plans to sell subscriptions directly over the Internet,” it’s at least partially posturing due to the MSOs having anticipated content owner’s potential desire to go direct to consumers in their carriage agreements. Most current agreements have “most favored nation” clauses that, in short, mean MSOs don’t have to pay the network more per subscriber than any other outlet they offer their service on.

    Considering Netflix subscriptions hover at around $8 a month, that would be considerable lost revenue for any premium cable network. For a network like HBO, this means that they would have to immediately exceed their current subscriber base just to match their current revenue. Unless HBO were taking on significant water in their current model, there’s little immediate incentive for HBO to take the risk.

    MSO deals also allow the stronger network brands to negotiate carriage for sister and child networks, something that may very well get lost in an online / direct model. And for networks with advertising, it’s even more complicated because, if they don’t hit their subscription numbers, they negatively impact both of their primary revenue streams, subscription and advertising.

    HBO is already on the forefront of TVE with HBOGo and MAXGo, both as apps / services and via their on deck positions on products like Apple TV. From a consumer standpoint, a direct offering give that an online subscriber online access, but they now have to stream to their television (Apple TV, Roku, etc.) because if MSOs aren’t making any revenue on the subscription, they certainly aren’t delivering it via cable or satellite.

    Meanwhile, HBO is no doubt learning a ton about the consumption habits of HBOGo and MAXGo users without having put all their proverbial eggs in that basket. Trend data they have at this point in time however is short-term (e.g the binge-viewing and non-linear programming options that Netflix thrives on), and they may not have a large enough sample set across generational demographics to make an informed decision on David Wells’ suggestion.

    We will see the day in the not too distant future where networks become unbundled offerings, whether it’s an evolution of MSO offerings, networks taking the Internet plunge and going direct or some TBD hybrid. For now, HBO seems to be striking the right balance.

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  9. I agree with the netflix guy. As someone who doesn’t have HBO channel on cable, i have no interest in subscribing to it to watch their shows. If they offered a reasonably priced seperate streaming service i would be more likely to try that.

    Though i personally wish HBO would just stop being stubborn and give their older content to netflix to stream. Would love to be able to finally see the Sopranos and binge watch a couple seasons of it.

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  10. I’d be interested in an online HBO service. I don’t spend money on cable+DVR because it’s a poor value for what I want. I do spend money on streaming / downloaded content, but it’s what I want and when I want it.

    Broadcast content models won’t die right away, but their death *is* certain. Cable is losing both the generational and life-model wars. People want control over their time and their content, and whoever supports this will get their money. Standing in the way of it is a losing battle.

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