HBO’s Online Pricing Trap

HBO’s broadband service looks doomed even before it starts.

While HBO hasn’t disclosed details, pricing of the new broadband offering most likely won’t be less than HBO’s pay TV retail price of around $15 a month, according to a person familiar with the situation. That’s $6 more than the price of Netflix’s most popular plan and a price that will likely drastically limit demand for the new service.

HBO, of course, wants to avoid undercutting its pay TV version with a cheaper offering while at the same time appealing to a group of consumers it isn’t now reaching. But at $15 a month, HBO is likely to fail at both objectives.

It will be too expensive for many people, many of whom are used to cheaper offerings from the likes of Netflix. A recent survey of broadband-only consumers by the Diffusion Group found that only 6% were moderately or highly likely to sign up for a broadband HBO service priced at $15, while 65% to varying degrees were unlikely to do so.

But as expensive as it is, the new offering won’t help HBO protect the pay TV ecosystem. Even a high priced standalone service adds to a growing array of such offerings that over time could make it easier for people to disconnect.

As Netflix CEO Reed Hastings said in an interview with The Information, how HBO will price the service is “a tricky issue for them.”

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In a presentation on Wednesday announcing the HBO move, Time Warner noted that about only about half of the 10 million broadband-only people used streaming services. Possibly the other half are watching pirated video, including HBO programs, but either way, if they’re too cheap to pay for Netflix or Hulu, it’s unclear why they would pay a premium for HBO.

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Joe Lonsdale
Joe Lonsdale
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The problem for HBO is that by pricing the broadband service at $15, it’s unlikely to succeed either in luring broadband-only customers or in preventing a slow erosion of the pay TV “bundle.”