HBO is in talks with Apple to make Apple TV a launch partner for its highly anticipated streaming service when it debuts next month. HBO and streaming partner Major League Baseball Advanced Media are working to have the standalone service, called “HBO Now,” ready to launch in April in conjunction with the premiere of the fifth season of “Game of Thrones,” according to sources familiar with the plan.
When it launches, consumers will be able to subscribe to HBO Now directly from HBO for the first time, rather than through a cable, satellite or telco TV distributor such as Comcast or Verizon. The retail price is expected to be $15 a month when purchased directly from HBO, or about what consumers pay when they order HBO through their cable, satellite or telco provider.
HBO’s corporate parent, Time Warner Inc., will rely on a whole new line of distributors (e.g., Apple TV, Roku, Xbox, PlayStation, Amazon, etc.) to help market HBO Now to an estimated 10 million U.S. broadband subscribers who do not pay for a cable TV bundle. CEO Jeff Bewkes has said the offering could also help reach some of the 70 million cable TV subscribers who do not subscribe to HBO but might if given the opportunity to subscribe online.
HBO’s over-the-top service has been cast as the biggest challenge yet to the so-called cable bundle, in which consumers are required to buy packages of channels, some of which they may never watch. One study claimed the service would lead to a 7 percent drop in pay TV subscriptions, as users opt out of cable and opt in to HBO Now.
Some cable providers, however, such as Cablevision and Cox Communications, have expressed interest in bundling HBO Now with broadband for their own subscribers who don’t get cable TV.
Apple has been most aggressive in courting HBO in a bid to add the service to Apple TV, sources say. Apple TV already carries HBO Go for current HBO subscribers, but it may add a second app for HBO Now. Apple has spent the past several years negotiating for the rights to offer its own linear TV package; in the meantime, HBO Now is seen as an added service to drive adoption of Apple TV.
While HBO has not confirmed a launch date for HBO Now, internally the target is an April launch, in time for the April 12 debut of “Game of Thrones.” That’s an aggressive time frame for Major League Baseball Advanced Media, which is building the back end along with a new front end separate from HBO Go. HBO is taking care not to launch HBO Now before it can guarantee that the service will work without some of the technical glitches that plagued HBO Go during last year's debut of cult-fave "Game of Thrones."
The launch of HBO Now will be a milestone for Time Warner’s premium TV channel, which has for most of its 42-year history been distributed as an add-on to a package of cable channels. The Web service will allow HBO to sign on a new group of distribution partners, which it sees as no different than when it added satellite TV and, later, telcos such as Verizon and AT&T.
Each of those distributors pays a wholesale price for HBO and then resells it to consumers for anywhere from $13 to $18 a month. Most see HBO as a retention device; those who subscribe are less likely to drop service or switch providers. HBO and Time Warner declined to comment.
At $15 a month, HBO Now will be significantly more expensive than Netflix, which ranges from $8 to $12 a month for various levels of service, but cheaper than some were predicting. HBO makes the case that it has more original programming than Netflix and a better, more current film library. “It’s a premium product, and it will be priced accordingly,” HBO CEO Richard Plepler said during a Time Warner earnings call in February.
HBO’s push to launch HBO Now comes after years of talking about launching an over-the-top service that bypasses traditional cable TV. Understandably, it has been met with some resistance from current distributors, including Time Warner Cable and Comcast, two companies in the midst of a $46 billion merger, according to sources.
HBO, of course, heard the same misgivings from cable companies when it first added satellite TV providers and then telcos as distributors. HBO’s strategy is to give early partners a pricing advantage over newer ones; it’s unclear how this will go over with Apple, which has a track record of squeezing advantageous deals out of media, including the 99-cent single more than a decade ago.
Bewkes said in December that he saw “cord-cutting” accelerate as pay TV providers dropped subscribers. U.S. pay TV providers lost 125,000 subscribers in 2014, according to Leichtman Research Group. At the same time, HBO and Cinemax reported their highest number of new subscribers (2.8 million) in 30 years.
Among the challenges HBO faces to get HBO Now launched is how to avoid confusion with HBO Go, the service that allows HBO’s cable TV subscribers to access it on the Web, smartphones and tablets. The two services will have separate log-in pages and separate apps, but some cable execs are concerned about customer confusion. The explanation might challenge even the best call center employee: HBO Go is for TV subscribers to watch their content on devices; HBO Now for those who don’t subscribe via TV.