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Parks: 50% of HBO OTT Video Subs Would Cancel Pay-TV Service

22 Jan, 2015 By: Erik Gruenwedel

Be careful what you wish for. Media companies clamoring to join the subscription streaming bandwagon could see forays into over-the-top (OTT) video undermine their existing distribution channels, according to new research.

About 17% of U.S. broadband households are likely to subscribe to HBO’s much-anticipated OTT platform launching in the spring, according to new data from Parks Associates. The data was culled from a fourth-quarter survey of 10,000 U.S. broadband households.

Among these likely subscribers, 91% are pay-TV members and roughly 50% (8.5% of total domestic pay-TV market) said they would cancel their bundled channel service after signing up for the HBO OTT service, which was priced at $14.99 a month in the survey.

HBO rival Showtime also is planning an OTT service launch this year, according to parent CBS. And Dish Network made headlines earlier this month when it said it would launch a standalone OTT service featuring ESPN and other brands for $20 a month.

In a Jan. 20 fiscal interview, Netflix CEO Reed Hastings said any attempt by HBO to be price competitive with Netflix would likely undermine its existing ecosystem.

“They’ve generally given the signal that they’re going in softly in terms of not being too disruptive using the existing partnerships, [which] would tend to imply a little bit higher price point,” Hastings said.

HBO’s initial SVOD foray in Scandinavia — HBO Nordics — did price itself above Netflix, according to Hastings.

“Even if they were to match us in pricing, it’s going to be a lot of people subscribing to both, and I think that over the last five years with HBO and Showtime, when Showtime has a great run with ‘Homeland’ and ‘The Affair,’ it increases Showtime subscriptions, it doesn’t decrease HBO. And I think we’d see the same with us and HBO, which is if they do great work, people will additionally subscribe to them because that cost is pretty small per month, hours are small per month relative to all their other entertainment options, so it’s definitely not a zero sum gain.”

Indeed, CBS launched CBS All Access last year enabling subscribers (at $5.99 a month) to watch largely catalog programing. About 12% of survey respondents said they would sign up for the service. Other potential standalone OTT brands cited in the survey, include Starz Play, Cinemax Go, MoviePlex Play and Encore Play.

Speaking last December at an investor confab in New York, Time Warner CEO Jeff Bewkes dismissed concerns the HBO OTT video service could threaten the pay-TV market — of which about 30 million subscribe to HBO. TIme Warner owns HBO.

“We don’t think that would happen. We’ve been doing [HBO] 20 to 30 years. We’ve seen Netflix in five years go to 35 million homes. It didn’t do anything to [bundled channel households],” Bewkes said.

Parks reports the average head of household in a U.S. broadband household watches nearly 3.5 hours of OTT video each week on a TV set.

“HBO picked a good time to announce its standalone HBO Go OTT service in the U.S.,” Glenn Hower, Parks research analyst said in a statement.

Over 50% of U.S. broadband households subscribe to an OTT video service, but Parks said the data does not mean consumers are ready to abandon their televisions.

“This shift to the use of OTT on the TV screen will impact the entire ecosystem, including pay-TV providers, broadcasters, cable networks, and advertisers. Everyone will need to adjust to a new way of doing business,” Brett Sappington, Parks director of research, said in a statement.

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