Time Warner’s HBO has finally announced the launch date of its much hyped over-the-top streaming service, HBO Now. The service is set to launch in April and it will initially be offered onApple devices for $14.99 per month. The service will include HBO’s past, present and future series in addition to its lineup of Hollywood movies. While the streaming service is a step in the right direction and targets the broadband-only subscribers, the network may face some pricing pressure on the pay-TV front in the coming years. On that note, we discuss below how this new streaming service will impact HBO.

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Streaming Is The Future And HBO Is Positioning Itself At The Right Place

HBO is a premium channel with a subscriber base of around 46 million in the U.S. It is one of the most expensive networks and charges around $7.50 monthly subscription fees to pay-TV operators, according to our estimates. While the network has achieved consistent growth in subscribers over the past few years, it decided to go over-the-top last year and reach out to the broadband-only subscribers. This move was largely expected as HBO already offered a similar service in some of the international markets. Moreover, a change in viewing habits and the higher penetration of smartphones and the Internet are forcing some of the media and pay-TV companies to think beyond their traditional offerings and come out with advanced products and services to cater to the rising demand for alternative video platforms and over-the-top services. Video platforms such as Netflix have already seen a rapid subscriber growth over the past few years. In this changing environment, the challenge for the media industry at large is to make the content accessible in and out of the home.

However, going over-the-top as a standalone service could trim the existing subscriber base of any network on the traditional television. Someone opting for a streaming service may decide to opt out from HBO subscription from pay-TV operator and this is something the networks wouldn?t want. The primary target for such services are the millennial viewers who prefer to access the content in and out of home and on multiple devices, the cord-cutters and cord-nevers, and finally the broadband-only subscribers. It must be noted that there are 10 million households with broadband-only subscribers and around 80 million households who are not subscribed to HBO. The network rightly sees immense opportunity to reach out to these homes and even if it is able to tap 10 million overall streaming subscribers in the long run with pricing at $15 a month, it will translate into revenues of around $1.80 billion, which is more than its current income from international operations and content licensing. Assuming current EBITDA margins of 35% for HBO, it will translate into EBITDA of $630 million, according to our estimates.

However, the ride may go bumpier if pay-TV operators reduce HBO’s subscription prices to the end customers to compete with such service. Some of the pay-TV operators have already reduced HBO’s pricing from around $15 a month to $10 a month. Given these trends, pay-TV operators may share the cut with HBO.

Overall, we believe this is a step in right direction from HBO’s point of view. HBO is a premium channel with a massive demand for its content, which is evident in the success of its original programming such as Game of Thrones. And it can attract more viewers with these sorts of offerings. Moreover, such services are also a response to a looming change in viewing habits. To judge the future of television, one can see that there will be a place for streaming and HBO is positioning itself rightly to offer the content on multiple platforms.

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