Thursday, October 16, 2014

Streaming Services Update

As we eagerly await the latest update on WWE Network subscriber numbers (WWE Q3 earnings and conference call tentatively scheduled for 10/30), today is a good opportunity to catch up on the latest news and developments in the area of over-the-top streaming video services.


First up is yesterday's news from Chairman and CEO of Home Box Office, Inc. Richard Plepler that HBO would be launching a "stand alone" version of their popular HBO Go service.

Variety immediately speculated on some questions around what this service may look like:

  • Would it have the full library of past and current HBO programming? 
  • Would it cost more than the normal monthly HBO pay-TV price? 

Already, we've seen a few answers emerge to address these questions. New York Post media Reporter Claire Atkinson tweeted that according to executives the "HBO GO OTT will be the full monty... not a lightweight version." And the Wall Street Journal reported that "according to a person familiar with the matter... the fee for the new service isn’t expected to be any cheaper than... average monthly cost for an HBO subscription ($15)."

CEO Plepler noted there is already "10 million broadband-only homes" and that "large and growing opportunity that should no longer be left untapped." Certainly, with sky-high piracy rates for popular HBO shows like Game of Thrones, there's a healthy appetite for the original content. However, how much that will translate into recaptured revenue from new U.S. subscriptions remains anyone's guess.

HBO Go is already available as an internet-only option in the Nordic countries (Finland, Sweden, Norway and Denmark). This is no doubt a response to the rapid growth of Netflix in this same area. This area of the world has been a fertile ground for over-the-top subscription services with some analysts connecting this to the acceptance and growth created by Spotify (a Swedish company).


As the SNL Kagan's analysis highlights, Netflix has continued to robustly grow their domestic streaming subscribers numbers over the last three years while HBO has only gently increased their domestic subscriber ranks.

As the chart above demonstrates, Netflix has continued to acquire new members. However, the company's stock did drop more than 20% when announced Q3 results which did not match original forecasts. It should be stressed that Netflix still added 3 million new members (1 million US, 2 million int'l) but they didn't meet the original target of 3.7 million new members.

Interestingly, the company is pointing the finger of blame on "slightly higher prices we now 
have compared to a year ago. Slightly higher prices result in slightly less growth, other things being 
equal, and this is manifested more clearly in higher adoption markets such as the US." The letter to shareholders goes on to note that the "large positive reception to Season Two of Orange is the New Black" seems to have offset the "late Q2 and early Q3 the impact of higher prices".

It does seem remarkable that a $1 price increase in the U.S. in May would have such a blunt impact on subscription growth. As CEO Reed Hastings told the Associated Press, "There is slightly more (pricing) sensitivity than we thought".  (It would appear the new drinking game is around the word "slightly".)


One reoccurring theme from reading articles about Netflix and HBO Go is that content is still king.

The strength of these services is built on the high-quality programs they create and rights they control. It's an important lesson that if you're implementing a price adjustment, they'll need to time it strategically. In WWE's example, one would expect that would be around premium event such as WrestleMania. 

Still, I don't expect that we'll see what Robert Routh said during the Q1 conference call, "all you need is one House of Cards or one Game of Thrones and obviously subscriptions for WWE network will go off the chart."

In attempt to generate additional revenue, this week the WWE announced they are adding limited video advertising to the WWE Network. I outlined all the important elements in my B/R article (15-30 seconds, every fourth stream, initial sponsors include Pepsi, Mattel and Kmart). 

Certainly, more established services such as Netflix and HBO Go have eschewed advertisements while smaller services with smaller subscription bases such as Hulu Plus (6+ million) continue to utilize them. Why? "(T)o reduce the monthly subscription price of the service."  With WWE still struggling to hit a million subscribers, it makes far more sense for them to follow Hulu Plus' model instead of Netflix or HBO Go.

One positive step for the WWE Network is that there's a new Chief Digital Officer (Lou Schwartz) whose responsibilities include overseeing "product development and operations for WWE Network." While the company has recently been doing cost-cutting, it's good to know that executive positions, particularly in the digital media space, aren't going to stay vacant forever.


A new player in the streaming media space include "CBS All Access" ($5.99/month), The USA Network just launched their new app "USA Now" (and companion "SyFy Now"). 

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