HBO CEO Says Less Than 1% of Subs Switching to HBO Now

5 Aug, 2015 By: Erik Gruenwedel

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When HBO in April launched over-the-top video service HBO Now, industry concerns revolved around the service’s impact on the pay-TV subscribers and affiliate distributors.

HBO CEO Richard Plepler Aug. 5 sought to alleviate those concerns with data indicating less than 1% of HBO's 30 million subscribers have jettisoned the premium channel in favor of the $15 monthly standalone service.

In fact, the HBO Now app was the top downloaded app on iTunes in May and June. The service also inked distribution deals with Verizon, Google Play and Amazon.

Former ESPN talent Bill Simmons will launch a weekly talk show in 2016 on HBO Now, in addition to HBO and HBO Go.

“It’s obviously early days, but we are very excited about what we have seen with HBO Now. From everything we’re seeing, both from sampling, subscriber satisfaction has exceeded our expectations,” Plepler said on the Time Warner fiscal call. “We feel HBO Now will be profitable in the coming quarters.’

While HBO hasn’t disclosed Now subscriber data, MoffettNathanson analyst Michael Nathanson suggests HBO Now paying subs could be as high as 1.9 million. If true, that would mean the SVOD service has already acquired nearly 20% of the 10.7 million broadband-only households it was launched for.

Then again, the low barriers to join and exit HBO Now and other SVOD services such as Netflix and Hulu Plus indicate a strong likelihood for subscriber churn.

In the past 12 months, 4% of U.S. broadband households have canceled their Netflix service, representing nearly 9% of Netflix’s current 42 million domestic subscriber base. By comparison, 7% have canceled their Hulu Plus subscription within the past 12 months, a figure that represents approximately one-half of Hulu Plus’s current 9 million sub base, according to .

“To shed a number of subscribers equal to half or more of your current subscriber base is a huge problem,” Brett Sappington, director of research for Parks Associates, said in a statement. “Customer acquisition costs for an OTT video service are relatively low, particularly compared to pay TV, but OTT video services will eventually have to capture and retain their customer bases over time in order to survive in the long term.”

Indeed, 7% of U.S. broadband households subscribe to an online video service other than Hulu, Amazon Prime Instant Video or Netflix. The number of people canceling one or more of these services over the past year represents 60% of those who subscribe currently.

Parks said 85% of U.S. broadband households subscribe to a pay-TV service, and 59% of U.S. broadband households access an OTT video subscription. Of those who use OTT video, just under 50% use two or more services.

HBO’s Richard Plepler concurs that targeting broadband-only households amounts to “low hanging fruit,” and that the bigger prize is the 70 million pay-TV households that don’t subscribe to HBO.

To achieve that will require getting multichannel video program distributors on board with the concept of revenue sharing HBO Now. Plepler said that when Verizon signed up for HBO Now it underscored the telecom’s willingness to grow its business.

“That’s part of the marketing effort we are going to make,” he said. “The good news is that once people see what kind of versatility [HBO Now] provides them, they’re very responsive to it. So we need to make that marketing investment going forward. And that’s what we plan to do.”

Meanwhile, HBO reported a 7% ($40 million) decline in second-quarter (ended June 30) operating income to $508 million, due in part to launch costs surrounding HBO Now. Revenue increased 1% ($21 million) to $1.4 billion.

 

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