HBO and Showtime are Being Revitalized using OTT

Netflix has become the poster child of how over-the-top delivery of premium content can create a hugely valuable business. But in Netflix’s shadow, traditional premium TV networks including HBO and Showtime are being revitalized by OTT delivery which is changing the dynamics of subscription TV.

Both HBO and Showtime recently reported record subscriber levels for 2017, mainly attributable to online growth. HBO and Cinemax gained over 5 million subscribers in the U.S., driving its domestic base to 49 million. Half of the online subs came from HBO Now, its standalone streaming service, with the other half coming from distributors like Amazon Channels and skinny bundles like DirecTV Now.

While HBO made a big splash with its HBO Now launch back in early 2015, the company has been extremely careful not to discount its monthly price below $15 (though distributors routinely offer it on promotion), continuing to pursue a market skimming strategy that inherently limits its upside. Yet, even at the relatively pricey $15 per month, HBO Now more than doubled in size in 2017.

Meanwhile, Showtime passed the 25 million subscriber mark for the first time in 2017, notching its best revenue growth in history. CBS said the nearly 5 million online subscribers it now has from All Access and Showtime are equally split between the two. That would mean approximately 10% of Showtime’s subscribers now come from direct-to-consumer, skinny bundles or online distributors like Amazon Channels and Hulu.

HBO’s and Showtime’s revitalization underscores how OTT’s ability to improve consumer choice can change business fundamentals. In the pre-OTT era, HBO and Showtime were entirely dependent on striking carriage and bundling deals with pay-TV operators. While both networks have created driven strong promotions, they were high-priced options for increasingly value-oriented consumers.

The heart of the issue was that for the most part pay-TV operators would not give their subscribers the option to subscribe to HBO or Showtime unless they first subscribed to an expensive tier of ad-supported TV networks. This “buy-through” meant the decision to add HBO and Showtime would only happen once a subscriber was already spending $50 or more per month. Talk about a hard place for HBO and Showtime to be positioned when Netflix is available for $10 per month with no contract.

Fast-forward to today’s OTT era and not only are HBO and Showtime available online as standalone services, but they can also be accessed on top of inexpensive skinny bundles. And perhaps more importantly, they can be accessed with a couple of clicks by tens of millions of Amazon Prime subscribers in the Channels program, with billing straight to the credit card on file.

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