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cord-cutting

The Reasons Why HBO Doesn’t Want Your Money

The Interweb pretty much had a nervous breakdown when Netflix decided to charge subscribers an extra $8 for its streaming service. But now, wannabe cord-cutters (that's the term for folks who try to get their TV without cable or satellite) are losing their shit because another web-based video service, HBO GO, won't let them pay to subscribe (the service is available only as a fringe benefit to anyone who gets HBO the old-fashioned way). Yesterday, a well-meaning website designer from Illinois created TakeMyMoneyHBO, a website/Twitter meme/battle cry whose intent is to convince the pay cable behemoth that HBO GO should be an à la carte option. Lots of people have visited the site, and tech types are tweeting about it, but here's the hard truth: All the Internet pleading in the world isn't going to convince HBO to blow up its business model, at least not anytime soon.

While it might seem nutty that HBO would turn down the chance to get more people paying for its service — and without having to split subscription fees with cable/satellite operators, as it does now — the logic behind the network's resistance is pretty simple. In the same way NBC and ABC rely on a whole bunch of local stations (a.k.a. "affiliates") to spread their signal across the United States, HBO exists because cable companies distribute, market, and promote the network to their millions of subscribers. Try calling up Time Warner Cable or DirecTV and ordering service: Just as you can't go to a fast-food joint without being asked if you want fries with your order, cable companies relentlessly pitch HBO (and Showtime or Starz) as add-ons to basic levels of service. They might even offer you a few months of HBO free, in the hopes you'll get hooked. If HBO were to suddenly let consumers skip the cable middlemen, said middlemen would rightly be pissed. They'd stop promoting HBO. They might even threaten to stop offering the channel at all.

HBO isn't officially commenting on the Take My Money HBO campaign, though it did acknowledge it via Twitter Wednesday. "Love the HBO love. Keep it up," the network tweeted. The same missive also linked to an article on Tech Crunch, which it says "has it right." But it's not as if HBO execs hadn't been thinking about the issue before this latest flurry of activity. Co-president Eric Kessler pretty much repeated all of what we wrote above late last year at an online conference in New York. According to a transcript of Kessler's remarks put together by writer Dustin Curtis, Kessler explained HBO "benefit[s] tremendously from the existing ecosystem ... There are 60, 70, 80,000 customer service agents on the phone every day, and you know what they're talking about? They're talking about HBO. The affiliate covers that cost. The billing systems. That's the affiliates. If you watch HBO 5 minutes a month or 24 hours a day, 7 days a week, that's not a cost we have ... It's very beneficial to us to keep that transactional machinery going." But couldn't HBO make up some of those losses with direct subscriptions, particularly since it would keep every dollar you spend for the network (instead of sharing that money with cable companies)? Turns out, nope: "We'll gain a little over here [streaming], and we'll lose a lot over here [cable], and we think there will not be a net gain, there would be a net loss," the exec said. "So it's really about economics and a business issue."

An article last summer in The Economist laid out the math even more explicitly. Out of roughly 105 million TV homes with cable here in the U.S., the vast majority — 77 million — don't bother to pay for HBO. By contrast, there are just 3 million homes "with broadband connections and reasonable amounts of money but no" cable, the magazine reported. Trying to convince more of those 77 million without HBO to subscribe, while keeping those who already pay for it happy, seems to be a safer bet than trying to satisfy the cord-cutters. (This, despite the heart-tugging New York Times article from last month which detailed the tragic tale of Girls groupies who've had to beg friends and families for passwords to HBO's all-access app because they simply can't afford the cost of a cable subscription. Sniff.)

And yet, there's another stat worth noting: According to Nielsen, the number of TV homes with broadband but no cable jumped nearly 23 percent last year. While still under 5 percent of the overall TV homes, more folks are clearly experimenting with do-it-yourself TV programming. If we ever get anywhere close to a tipping point, where more people decide to give up on monthly cable bills, it's possible those who want to pay for HBO GO by itself will get their wish. Another HBO exec, Bill Nelson, hinted the company is open to change. “Let’s assume that in ten years’ time there has been a significant shift away from multichannel subscriptions,” Nelson said in the Economist article. “In that environment, HBO may reconsider its position.” For now, anyone who can't wait for HBO shows to hit iTunes or DVD will just have to get their fix the old-fashioned way: BitTorrent!

Photo: HBO