HBO Flirtation with OTT Model Signals Gravity of Online Trends

David Adams, VP, corporate development, Accedo

David Adams, VP, corporate development, Accedo

By Fred Dawson
 
March 22, 2013 – The crack in the dam that’s long prevented premium TV programming from flooding into OTT distribution just got a little bigger, thanks to a hint from HBO’s CEO Richard Plepler that a broadband subscription model akin to what the company has already launched in Scandinavia could materialize elsewhere.
 
While Plepler only ruminated on the possibility at the San Francisco premier of Game of Thrones season three on March 20, the fact that he said more or less the same thing in separate interviews reported by Reuters and TechCrunch suggests the idea is under serious consideration at the pay TV giant. Reuters quoted Plepler as saying, “Maybe HBO GO, with our broadband partners, could evolve” where, for example, HBO GO could be packaged in partnership with broadband providers at a service fee of $10 or $15 above the broadband service cost. “We would have to make the math work,” he said.
 
Asked by TechCrunch in a separate interview to describe what HBO distribution might look like five years from now, Plepler said one option might be a broadband-only HBO service. “Who knows?” he said. “We’ll see where that goes down the road.”
 
The concept is now reality in Norway, Sweden, Denmark and Finland, where in December HBO made available much of its current programming on a 24-hour delay basis along with archives of many hits at a monthly rate of 9.95 Euros or about $13 on a 12-month subscription commitment. The launch of HBO Nordic AB, which is also available as a 9.95 Euro add-on to basic cable service, came on the heels of Netflix’ introduction to the Nordic countries and coincided with a report underscoring the potential revenue HBO is losing to piracy under the current business model.
 
Netflix and piracy are two big reasons along with many others for HBO and, indeed, every provider of cable and broadcast TV programming to continue pushing the envelope when it comes to OTT distribution. Netflix, with about 28 million subscribers, has greatly added to its clout with launch of the hit original series House of Cards and a commitment to heavy spending on other original programming as well as content licensing with the studios, including a new exclusive pay TV release deal with Disney for all its animated films through 2015.
 
As for the piracy impact, online publisher TorrentFreak, reporting an uptick in piracy in 2012 following slight declines in preceding years, identified an episode of Game of Thrones as the most pirated TV program in the world in 2012. The publisher said the 4,200,000 illegal downloads of theepisode nearly matched the number of estimated U.S. subscribers viewing the series.
 
The volume of illegal viewings of the second most downloaded episode, one from the Showtime series Dexter, actually topped the U.S. subscription viewership at 3,850,000 versus 2,750,000, according to TorrentFreak, which bases its reports on several sources, including reports from all public BitTorrent trackers. In contrast, the illegal-download-to-legitimate viewing-count ratio was just 20 percent for the third most pirated episode, which came from a series, Big Bang Theory, that is widely available in various time windows online.
 
Given that only about 20 percent of illegal downloads happen in the U.S., an apples-to-apples comparison would suggest illegal viewership for Game of Thrones in the U.S., which varies from episode to episode, tops out at 840,000, or about 19 percent of the number of U.S. subscribers. How many of those illegal viewers would pay if they could get HBO for a monthly fee in pure OTT mode is anybody’s guess, as is the question of how many cable subscribers would cut the cord if they could get HBO without paying for a cable service subscription.
 
But pressure is mounting for the OTT option. A viral Twitter campaign dubbed “Take My Money, HBO!” last summer generated hundreds of thousands of requests from non-cable subscribers saying they’d gladly pay to view the service online. Asked to Tweet what price they’d pay, consumers responded with suggestions that averaged out to over $12 per month, $2 more than Netflix, and some said they’d pay well over $20, according to press reports about the campaign.
 
The temptation to experiment by offering content to specific devices increases as it gets easier to implement and monetize direct-to-device applications. The opportunity to facilitate multi-device distribution by media companies, especially in the U.S., has become a big part of the growth agenda at TV app developer Accedo, notes David Adams, the firm’s vice president of corporate development.
 
“We’re seeing a lot of experimentation with programmers,” Adams says. “There’s this promise that digital advertising will offer a more efficient and higher value advertising model with the sexiness of the TV experience in the case of connected TVs. They’re trying to figure out how to add efficiencies and targeting and hopefully higher CPMs using OTT solutions without hurting their current business.”
 
Accedo has introduced a TV Everywhere app template that’s designed to support a much more cost-efficient and advertising-friendly approach to reaching multiple devices than the current mode of developing different apps for every device platform allows, Adams says. “If you want to be in 50 countries on 15 devices the custom development involved can be very costly,” he comments. “We’re offering a solution to our customers that will make it much less of a hassle.”
 
Accedo has seen its business double over the past year, much of it driven by work with media companies who want to get their content onto various device platforms, he says. “We were doing the same thing over and over again with customization for each customer to distribute into iOS, Android, various smart TVs, Xbox – it didn’t make sense,” he notes. “We saw we could package the solution as a template and allow some customization on top to lower the costs and time to market.”
 
Building on this and other aspects of its TV app development work, Accedo can now offer TVE reference apps on every major device platform from smart TVs and game consoles to tablets and smartphone, Adams says. By integrating its TVE template with a broad range of online video publishing platforms, ad networks, analytics packages, transcoding and streaming system and other components, the company allows customers to work with their choice of such providers to create the consumer experience that suits their needs across multiple devices, he explains.
 
“The solution also incorporates other Accedo products like Accedo Connect, which allows you to connect a second-screen app to control a second-screen experience through your first-screen TV Everywhere app,” he says. “We also bring our ad mediation platform for connected TVs into the TV Everywhere solution so you don’t have to rewrite the app for every ad network you may want to work with. It allows you to change ad networks on the fly.”
 
The TVE app template also offers a consistent way of addressing the application layer through Accedo’s AppView, Adams notes. This provides customers one place to configure, control and manage all their applications rather than having to manage each application separately.
 
Accedo is working with content companies to create custom apps “with the full nine yards of making OTT content look like what they’re doing on broadcast,” he says. “That will be the beginning of a major shift in the market in terms of how media companies deliver content to consumers. There’s a massive amount of work to do over the next year or two as these companies try to replicate their business models in the OTT domain.”