Wednesday, October 15, 2014

HBO and Extreme Disintermediation

      HBO announced today its intention to offer access to its content via the Internet without proof of a cable or satellite television subscription.  See http://time.com/3510434/hbo-online-streaming/.  This decision could trigger more “disintermediation” of cable and satellite television i.e., reduced or eliminated subscriptions as consumers eliminate the intermediaries.

     Until now premium sources of content largely closed ranks with multichannel video programming distributors (“MVPDs”) presumably because they perceived higher returns by jointly sharing a portion of subscription revenues.  By offering direct access, HBO seeks to serve the growing numbers of cord shavers, who have cut down on MVPD programming tiers and monthly subscription rates, cord cutters, who have abandoned their MVPD subscriptions entirely and cord nevers who have solely relied on broadband options.

     MVPDs may soon have reassess the value proposition they offer subscribers, particularly the tiering of content represented by dozens of networks.  Consumers have grown weary of paying hundreds of dollars annually for channels they never watch.  Using the Netflix $9 price point and the average $6.04 monthly rate paid by MVPDs for ESPN, an a la carte option to select and pay for specific content sources may work.  It will take many selected channels to total the bundled tier now costing $50-75 monthly.

     MVPDs have asserted that a bundled option offers greater value and lower prices.  Maybe not.

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