This week, Apple and HBO announced a partnership for the imminent launch of HBO Now, the new direct-to-consumer offering from HBO. I have to admit that I didn’t think that HBO was ready to take the full step towards a real OTT service, but assumed that the new OTT offering would be focused on library content only. This is clearly not the case, and with a launch date on Apple devices just before Season 5 of Game of Thrones, HBO are finally targeting the cord cutters with an offering.
This launch is truly a turning point for the US TV industry for the following reasons:
1. Firstly, HBO is seen as a leader in the US pay-TV market. Along with ESPN, they’re the most profitable, successful and vital brand in the US pay-TV market. If they succeed with HBO Now, we can expect their direct competitors in the premium market to follow.
2. Secondly, while Netflix has for years had HBO in its sights, HBO has shrugged off the comparisons. Now, HBO will finally go head to head with Netflix. HBO has a long way to go before they’re even close to Netflix’s coverage in terms of devices and territories but it’s easy to see where we will be 4-5 years from now.
3. Finally, and most importantly, we’ll finally see US cable moving. HBO has for decades been their staunchest ally and the close partnership has generated billions of dollars in profit both for HBO and their distribution partners. If HBO is successful, they will see the writing on the wall and will invest heavily in their own premium OTT offerings. The launch of DirecTV’s Yaveo service is the first baby steps in this direction but I expect to see a tremendous shift in mindset as soon as consumers can find the content anyway, effectively bypassing the operator.
So, is there anything that can stop this trend?
I believe that the last major hurdle is net neutrality. Being based in Europe, net neutrality has been a given for years, with fair competition being enforced by the EU. This has led to a vibrant competitive environment both among ISPs and content providers compared to the US. In the US, cable companies dominate both the content distribution and the ISP markets, creating effective geographical monopolies in large parts of the country. If they’re losing the pay-TV market, we can expect that they will want to generate the same amount of revenues from the ISP market, charging content service companies distribution fees. This will significantly add to the consumer fees, effectively stopping healthy competition and a natural evolution of the market place. Grim future indeed! However, there is some hope. The FCC finally passed net neutrality rules on February 26, which effectively classifies broadband Internet as a utility, which should have fair and open access. Now, the fight is not over and before this decision is implemented in the marketplace, expect to see the cable companies putting up a serious fight in order to delay it as much as possible.