Cable MSOs Should not Panic at HBO’s Streaming Decision

Oct 16, 2014

Stuart Smith

Stuart Smith

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HBO’s decision to offer a standalone streaming video service in 2015 is not a surprise. All content providers are looking to increase market share. However, the impact of this decision could be a potential game changer and net neutrality test for each cable MSO (Multi-System Operator).

Why HBO’s Decision is Important to Cable MSOs

HBO’s move to a standalone streaming option is a solid business decision based upon Nielsen’s 2013 estimated cable channel coverage. In the graphic below, the basic standard cable channels reach over 90 million homes. HBO on the other hand is in around 32 million.

Close up, angled shot of the new Windows 8 start screen on a desktop computer.

The business opportunity for HBO is crystal clear. There are a potential 70 million more homes for HBO to provide content to.

Their challenges are two-fold: The first is how to go after this market without burning the cable MSO bridges that have got them to the point they are at now.

The second challenge will be more of a business issue. How will HBO secure the business relationships and revenue streams from their traditional MSO offering while supporting the fickly relationships directly with consumers?

In addition, the success of HBO’s foray into online streaming is going to be dependent on several factors including:

  • The type of technology they will use; will it be self-developed or will they strike a deal with the existing cable MSOs to piggyback on their infrastructure.
  • Will HBO be able to provide quality original content for their online standalone streaming such as Game of Thrones, True Detective and Last Week Tonight with John Oliver?
  • How will cable MSOs react? HBO has always been a valuable and profitable cable channel for cable MSOs. The idea of net neutrality could be tested here in an effort to keep HBO in the cable only fold.
  • What will be the operating costs for managing individual consumers including billing and support?

The idea of HBO becoming a net neutrality fight is significant. If HBO is successful in obtaining tens of millions of new viewers, they will have set the stage for other traditional pay-per-view cable only channels to follow suit.

Some of these providers such as Showtime, brings light for other providers to an opportunity that other traditional pay-per-view cable content providers and future entrants may jump on.

The key to their success will be the appeal of original content and their ability to deliver it consistently without the complications that Netflix has had.

Cable MSO Options

It has been known for a long time that cable TV is not the future of cable MSOs. This is the reason they have diversified vertically. Cable MSOs have made significant investments in Internet infrastructure, content production for example the Comcast/NBC Universal acquisition, home security, and telecommunications.

Because cable MSOs have diversified, HBO’s decision to have a standalone streaming service can be taken as a logical and natural change.

Still, if some of the bigger cable channels decide they can make more money going the streaming it may spell the end of the traditional cable package. How will cable MSOs react if ESPN (which already does some streaming) and Disney go it alone? This would be a significant change.

The potential loss of an established content provider is not the end of the world for cable MSOs but it does reflect the changes and direction away from cable toward their being a major player in the Internet of Things.

As always, cable MSOs must be vigilant in competing for subscribers and keeping a watchful eye for competitors from all directions.

Stuart Smith

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