Award Winning Blog

Thursday, October 23, 2014

Out of Pocket Costs for Over The Top Applications Like Standalone HBO

            When one accesses HBO via cable television and other multichannel video programming distributors (MVPDs”), the subscription price covers both content and conduit.  With HBO’s announcement that it will offer standalone access, without proof of an MVPD subscription, consumers now will see a price point for only the content.  Curiously this unbundled price may exceed the current rate of about $15 a month offered by MVPDs that includes carriage.

            How can this be?  Are MVPDs underpricing, or ignoring carriage costs?    Does a $15+ standalone price ignore the cost savings when consumers and not HBO bear the cost of carriage?  Is broadband carriage of an additional bitstream so insignificant in cost that it’s not worth metering or charging?

            These questions do not have easy answers, in part because outsiders, including researchers like me, have no access to cost information.  We know that bandwidth intensive applications, such as streaming video, can have a significant cost, particularly at busy hours when a carrier might have to invest in more bandwidth and switching facilities to accommodate demand.  However, we also know that unless and until Internet Service Providers (“ISPs”) reduce their unlimited or 250+ GigaByte monthly allowances, subscribers incur zero cost when they have to bear the cost of carriage for delivery of HBO.

            So the cost of broadband carriage will have no significant impact on consumer decision making about bundled or unbundled HBO access unless and until using an Over The Top (“OTT”) application for unbundled access to content only triggers additional charges.  Put another way, if consumers can “binge watch” HBO, Netflix and other content sources without exceeding their monthly data allowance, then having to bear the cost of carriage is insignificant.

            Who bears the cost of carriage has become a significant matter in recent weeks for content providers, like Netflix, content distributors, like Level3, last mile ISPs like Comcast and consumers.  Most wireless consumers on metered data plans, have no more than a few GigaBytes available per month. Device shifting HBO from the television set, or even the PC with wired broadband access, to mobile tablets and smartphone would likely trigger a higher data charges, or migration to an “unlimited” data access tier.

            The possibility exists that MVPDs like Comcast can punish HBO and its standalone subscribers by reducing wireline data allowance.  Rather than meddle with HBO traffic, by throttling or degrading service, all Comcast has to do is raise subscribers’ incremental cost of video streaming and other OTT applications from zero.