DirecTV deal hinders a-la-carte HBO Offering

Discussion in 'DIRECTV General Discussion' started by SomeRandomIdiot, Dec 4, 2014.

  1. Dec 4, 2014 #1 of 135
    SomeRandomIdiot

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    http://online.wsj.com/articles/hbo-web-service-could-trigger-clauses-with-directv-1417648806

    Terms in HBO's carriage agreement with DirecTV could hinder the Time Warner Inc. premium network's plans to extend its service to an online a la carte model in 2015, the Wall Street Journal reports.

    Factoring in the possibility that HBO could launch such a product when the agreement was carved out several years ago, DirecTV's deal has certain provisions if the a la carte service were to reach 450,000 subscribers nationally or 300,000 in any specific market.

    According to the WSJ, the second largest pay-TV operator in the U.S. could scale back its marketing commitments to HBO significantly if those thresholds are met or exceeded. For example, DirecTV would only be required to highlight HBO's service in customer promotions for five months instead of 11 months.

    DirecTV, meanwhile, would be able to market HBO's streaming service itself.

    Since HBO's deal with DirecTV expires in 2015, coinciding with the debut of the a la carte product, the issue counts more probably as a bargaining chip for the satellite carrier.

    DirecTV declined comment, but an HBO spokesperson noted, "Our contracts are confidential, so we don't comment on them. However, DirecTV has been a great partner to us in the past and they will continue to be in the future."
     
  2. Dec 4, 2014 #2 of 135
    MikeW

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    Doesn't seem like a big deal to me????
     
  3. Dec 4, 2014 #3 of 135
    Aridon

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    Title is misleading.

    DirecTV has far more to lose from an a La carte hbo than hbo does.

    Just the fact that there will be people which will cut the cord after it become available will hurt tv providers. Some stick around for sports but there are also those that stay for HBO.

    HBO gains cord cutters. Every one that signs up is extra money and no commissions paid providers.

    Win win for them. Not so much for providers as more and more content moves to the web and out of bundles. Especially when the elephant in the room decides to do it. When it happens it will become a big deal.

    Now if people will pay the premium for a few channels will remain to be seen. Especially when they realize the savings isn't that high. We shall see. Not a good time to be in tv delivery. It's peaked and on the way down.
     
  4. Dec 4, 2014 #4 of 135
    Araxen

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    If Directv loses HBO they lose me. I will not miss my Game of Thrones.
     
  5. Dec 4, 2014 #5 of 135
    SomeRandomIdiot

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    The article says it gives DirecTV more leverage in the negotiations.
     
  6. Dec 5, 2014 #6 of 135
    inkahauts

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    HBO a la cart will never be cheaper for the same content as what people get now with directv with HBO go (or any other provider). HBO won't shoot its own foot. It only wants to expand.
     
  7. Dec 5, 2014 #7 of 135
    SomeRandomIdiot

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    Agreed. I've always thought it would be priced around $15 - pretty much as it was on C-Band.
     
  8. Dec 5, 2014 #8 of 135
    James Long

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    What was the price via DirecTV when it was $15 on C-Band? That may give a hint where the price would be to purchase "a la carte" separate from a large programming provider. (Past performance is not always indicative of future pricing, but it is a hint.)

    I'd expect a stand alone to be $5-$10 more than via DirecTV. If only for the hassle factor of maintaining individual accounts (including providing customer service direct to subscribers). Selling via DirecTV or another carrier the customer service calls are handled by the carrier. Having customer service in place for ~20 million subscribers to other channels reduces the cost for DirecTV.
     
  9. Dec 5, 2014 #9 of 135
    AmazinglySmooth

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    I expect HBO will be offered stand-along in the $25-$35 range. Why would they offer it for less?
     
  10. Dec 5, 2014 #10 of 135
    SomeRandomIdiot

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    Reality

    $15 is roughly double the wholesale price it is sold to DirecTV for - so that falls right in the middle of your range.

    To think they will get $5-$10 over retail price is ridiculous.
     
  11. Dec 5, 2014 #11 of 135
    itzme

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    These issues fascinate me, all this over-the-top vs subscriber fees, premium networks and the like. What's so fascinating is that all the deals are just stop gap negotiations toward an inevitable end, and end that all parties can see, but complicate because they need to show a quarterly profit to shareholders. Eventually cable and satellite companies wont offer anything to the content business models. It's just a matter of when, but issues like this and the evolutions going on with Disney and ESPN have put the writing on the wall pretty clearly.
     
  12. Dec 5, 2014 #12 of 135
    SomeRandomIdiot

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    Considering 60% of ESPN's revenue is subscription fees, 30% is advertising and 10% other, ESPN still needs Basic Tier/Mass Distribution for it's model to work.
     
  13. Dec 5, 2014 #13 of 135
    slice1900

    slice1900 Well-Known Member

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    Depends. What percentage of TV viewers are sports fans? Since almost every sport has some major games/events on ESPN, most anyone that considers themselves a sports fan will want ESPN. Let's say half of people were sports fans. If ESPN (all channels combined) is getting $8 now, in order to break even they'd need to be willing to pay an extra $8 over what they pay now (i.e. $16 total) for it if there was an ala carte ESPN package. If they're willing to pay an extra $9 for it, ESPN increases their revenue. With creative packaging for additional features designed to get people to pay as close to what they think it is worth (think airline pricing models) perhaps they could get some people to pay $9 and some people to pay three times that much.

    People always bring up the fact this has never been tried, but people making a lot of money doing something are always afraid of change. Jack Valenti, the head of the MPAA back in the 80s, compared VCRs to the Boston Strangler when they were battling against the legality of the VCR. In the end movie studios ended up making a lot more money as people were willing to pay to buy and rent movies on VHS, even the ones that were broadcast and they could easily record. The MPAA didn't have any actual facts to back up their fear, they just had fear and wanted to maintain the status quo because it was possible to see a scenario where it could hurt their profits.
     
  14. Dec 5, 2014 #14 of 135
    itzme

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    And I agree, for now. But they're smartly positioning themselves for the transition away from reliance on providers. Anyone with marketable content is also, and I love reading all the weekly news stories about these apps, Netflix, and the like. If you were making the strategies, wouldn't you look for ways to have your cake and eat it too? That's what the HBO apps (plural) are all about.
     
  15. Dec 5, 2014 #15 of 135
    SomeRandomIdiot

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    By Nielsen/ESPN's own research, only 12.5% of the TVHH ever watches ESPN (there are 114M TVHH in the USA this Season).

    So to break even, ESPN would need to charge 8x more than it is now.

    You are also assuming all 12.5M TVHH would sub to ESPN (a la carte) at a rate of roughly $60 a month, which is a fallacy, as many would refuse to pay $60 a month....meaning the price to break even would go even higher.

    Now, to makeup for the loss of audience this would need to go up another roughly $20+ to compensate for the lost advertising.

    So now we are close to $100 a month for ESPN a la Carte.

    And let's remember THAT WOULD BE THE WHOLESALE TO MVPD PRICE!

    I would also note to you that ESPN rate is already under contract to go up 20% in the next 24 months, so factor that in as well.
     
  16. Dec 5, 2014 #16 of 135
    James Long

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    They might charge retail ... but they are selling to a market that is trying to get content without paying for other content. HBO will charge what they can. If stream subscribers are willing to pay $20 for HBO without paying for a base cable or satellite package then HBO can set the price that high. They might lose a few customers who would pay $15 but not $20 for a stream only service. But I believe that there are enough in the "cut the cord" crowd who would pay $20. And the slightly higher price would help appease the cable/satellite companies who remain their core distribution channel.


    A lot has been done and is still being done to prevent recording. Some of it in technology such as macro-vision and digital rights management. Some of it in watermarking and editing films. If one wants the full movie unadulterated one needs to buy a copy.
     
  17. Dec 6, 2014 #17 of 135
    slice1900

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    Well, clearly ESPN has more than 12.5% "ever" watching, given that the most recent BCS NC game got a 14.4 rating and it wasn't the most watched in history. Surely there are some basketball, baseball, hockey, golf, etc. fans who don't watch football who would drive that percentage up further. But I will grant you that 50% is way overestimated, and even at 25% who would pay for ESPN, they would not all pay $18/month extra for it so the math probably doesn't work.

    I still think we're fast approaching the day when cord cutters start making a real dent in subscriber totals, and when a provider is losing 5-10% of its customers a year because of the constant rate increases that are mostly caused by sports, playing hardball on pricing and risking losing ESPN or just plain deciding to drop it entirely isn't a big issue if there are only 12.5% of subscribers at risk from that decision.
     
  18. Dec 6, 2014 #18 of 135
    SomeRandomIdiot

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    It is entirely possible, as the 12.5% ever watching is from around 2010-2011 and no updated information has since been shared (Probably because the flack the Executive who stated it on a panel realized never to make that mistake again). Whether 12.5% or even 15%, the bottom line is, the majority of Households do not watch ESPN. Even this last week, with NFL MNF and College Football Season (which obviously drives higher viewing), ESPN only averaged 2.1M Viewers.

    BTW, the reason Sports is always LAST in the TV Newscast (After News and Weather) and has been forever, is because every piece of research shows that only 25% of the public care about Sports - and that is the MAX in the markets with strong Sports presence. Lower in markets without a Sports presence.
     
  19. Dec 6, 2014 #19 of 135
    tonyd79

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    Wonder why the Washington Post blankets their front page with Redskins coverage. Nobody is interested.

    And weather is next to last because nobody cares.
     
  20. Dec 6, 2014 #20 of 135
    James Long

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    The statistic you are looking for is CUME not average viewers. A claim that only 12.5% ever watch ESPN is a claim that 87.5% of viewers have not watched any of the channels during the period one is referring to. If one wants to back up that figure one needs to look at CUME (cumulative viewers) and define the time period one is talking about.
     

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