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Cord Cutting and Media Ignorance
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This article is the topic of episode 24 “Cord Cutting and Media Ignorance.” Give it a listen!
What ever happened to the world where journalist would do a little research before they cover a topic for a publication? Recently, Claire Atkinson of the New York Post wrote an article criticizing HBO’s over the top streaming service HBO Now. The hit piece, entitled “HBO Now isn’t as popular as expected,” bases it’s criticism on the false premise that HBO Now has lackluster subscriber numbers. In the piece, Ms. Atkinson states:
While HBO brass had set its sights on a good chunk of the estimated 15 million homes that have cut the cable cord, HBO Now’s subscriber count currently hovers “just above 1 million,” one source familiar with the service said.
That’s up just slightly from March, when HBO said it was nearing the 1 million mark. As of last Dec. 31, there were 800,000 subscribers.
The next day HBO refuted the piece by restating the following quote from Time Warner’s recent 3rd quarter earnings call:
“On your OTT question, we couldn’t be more pleased or enthusiastic about what we are seeing this year. We have seen substantial growth with HBO Now.”
Why shouldn’t they be pleased? Ms. Atkinson’s own numbers show HBO Now has grown subscribership more than 25% in less than 1 year. Any business would be proud of those numbers. However, this does not even skim the surface of The Post’s ignorance on the topic they are trying to cover.
Not All Cord Cutters Stream TV
For example, take the 15 million homes mentioned as the target market of HBO Now. I’m not sure where The Post got that number, but that is the number of households without cable I estimated about 2 years ago. However, cord cutting has grown since then and that number is now over 17 million households without cable.
Although, that number isn’t necessarily the one you want to use to determine HBO Now’s potential market. The Nielsen Data for the 2nd quarter of 2016 accounts for 4.1 million households that watch TV using only Broadband and 13.6 that use a TV antenna. Furthermore, only 7.7 of that 13.6 million have broadband access. However, Nielsen counts slower DSL speeds as broadband. There is also no guarantee that household has the bandwidth to support video streaming. A recent FCC report demonstrated almost 22% of internet users have less than 10 Mbps of bandwidth. Streaming video has the potential to be a hassle at those speeds.
Those numbers put the market floor for HBO Now to be 4.1 million with a ceiling of 11.8 million. Taking into account that HBO Now has “just above 1 million” subscribers, and adjusting for adequate bandwidth, it’s a safe assumption that HBO Now has captured roughly 10% of its potential market. Considering HBO Now launched in April of 2015, it’s hard to call this growth “stunted” or “disappointing.” as Ms. Atkinson wrote in her hit piece.
HBO Now vs. Traditional HBO
However, HBO is a big name. Is 10% an acceptable market capture for such a big brand? To understand that aspect we would need to see how traditional HBO compares. Using the same Nielsen numbers, there are nearly 100 million pay TV households. According to 2015 estimates, 30 million U.S. homes have HBO. Although, HBO is often bundled free with a Pay TV offering to entice new customers to sign on to their service. HBO Now customers purchase the service directly from HBO for $14.99 per month.
To do a relevant comparison and account for Pay TV’s HBO promotional offerings it would make sense to take a revenue generation perspective to estimate the number of subscribers that would pay for a traditional HBO. In 2015, HBO received roughly $7.75 per month in revenue per traditional HBO subscriber. That compares to the nearly $15 dollars in revenue HBO receives for HBO Now subscribers. Ultimately, HBO Now provides 2:1 revenue generation compared to their traditional service.
If we adjust traditional HBO subscribers for this revenue discrepancy, we have 15.6 million subscribers. In other words, adjusting based on revenue, we can estimate 15.6 million pay TV households would have HBO if everyone were actually paying full price for the service. Compare that to the 99.4 million pay TV households and traditional HBO has 15.7% of its potential market. That is only 5.7 percent better than HBO Now, which has been around for less than 2 years.
Considering HBO Now isn’t widely advertised, younger cord never households have been known to borrow the parents HBO Go accounts, and traditional HBO’s market performance, HBO Now’s 10% market share is a laudable success. The only disappointment here is the amount of research put into this hit piece by the New York Post.
Listen to the Podcast
You can listen to this episode of the Grounded Reason Podcast through any of the sources below. This and every episode is 100% free for you to listen.
Podcast Client
Cord Cutting and Media Ignorance
If you are using a podcast client then you just need to add the shows RSS link which is “http://groundedreason.libsyn.com/rss”.
If you have iTunes, it would really help the podcast rankings if you used it to listen to the podcast. However, if you do not have it you can listen to the show in your browser below.
Contact the Show
Please Subscribe to The Show in iTunes, Stitcher, or your Podcast App.
Please rate and review the show in iTunes. If you want to send us questions or comments please use any of the methods below.
For more information on cutting the cord visit – https://www.groundedreason.com
Call and leave a question or comment for the show: 650-TALK-GRP
Email us at [email protected]
Tweet us @GroundedReason
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