The Economist has a wonderful article on how HBO has become the most exciting property on television, and in doing so, has raised the creative game for television. Many customers happily pay the premium price for the HBO suite of channels, getting something of an altogether different quality compared to most of what else is available on television. But this willingness to pay for HBO is threatened by the flabby bundle of channels in the basic suite. HBO is second in line for consumer wallets, only getting an opportunity for the dollars left after basic cable has been paid. The article poses the fascinating question of what would happen if HBO bypassed the pay-tv system altogether (a la Netflix), to get consumers while they had more dollars in their pockets:
HBO did not cause the rise in the price of basic-cable packages. But because it is sold as an add-on, other channels are in effect increasing its price. Imagine a supermarket where, in order to buy the item you really want, you first have to buy almost everything else in the shop. Now imagine the price of all those other items is constantly rising.
There is no easy solution to this problem. But HBO has a strategy. It has gradually rolled out HBO Go, an online video service which makes many shows and films available on-demand to anybody who can prove they subscribe to the network. HBO can do this because it owns its programmes. It is promoting the service heavily, occasionally putting popular programmes online before they air on cable.
If HBO were to try selling its programmes directly via the internet it would have a hugely disruptive effect on the television business—more disruptive than anything Netflix or any other company has yet done.
HBO, being a part of the Time Warner umbrella and its many cable properties, has a stake in the status quo. If it didn’t, and could go all out in disrupting the current cable business, imagine how much more valuable it would be.