Memo to cable companies: When Tony Soprano starts eyeing your territory, it's time to get nervous.
HBO – creator of mob epics such as The Sopranos as well as the equally bloody fantasy drama Game of Thrones – said Wednesday it intends to launch a standalone, online streaming service for U.S. customers next year.
Translation: Gentlemen, we're not happy with our current distribution through cable and satellite companies and we don't mind applying a bit of muscle to extract a better deal – even if that means busting up the pay-TV model that has been so profitable in the past.
Richard Plepler, chief executive of HBO, said the new service will at least initially be targeted at the 10 million people in the U.S. who have broadband Internet service but don't subscribe to cable or satellite TV. (It is not yet clear when, or if, a Canadian version will be available.) According to Mr. Plepler, the service has the potential to bring in hundreds of millions of dollars in additional revenue for HBO.
That may be an understatement. If HBO, a unit of Time Warner Inc., were to price the service at $15 (U.S.) a month – roughly what many pay-TV providers charge for the channel – and convinced six million users to sign up, the incremental revenues would top a billion dollars a year.
And that's just for starters. Mr. Plepler was careful to phrase his comments, Tony Soprano-like, as part threat and part invitation, but made it clear he's not content with the status quo: "We will work with our current partners. And we will explore models with new partners. All in, there are 80 million homes that do not have HBO and we will use all means at our disposal to go after them."
The announcement is the most dramatic evidence to date that the balance of power in broadcasting is shifting, away from pay-TV providers and toward "over the top" services that stream content over the Internet directly to users' homes.
Netflix is the best known of the streaming services, with over 50 million users in 40 countries for its all-you-can-watch cornucopia of television shows. During the past year, its number of paid members has grown by more than 50 per cent.
Netflix's easy availability and cheap pricing are helping persuade many users, especially younger ones, to "cut the cord" and dispense with expensive cable TV packages in favour of watching shows on the Internet.
Last year the number of Americans who pay for TV through, cable, satellite or fibre services declined by more than a quarter million, the first full-year decline, according to research firm SNL Kagan. The latest figures from comScore, a tracker of digital trends, show that 24 per cent of 18-to-34-year-olds are not subscribing to pay TV.
Sports and adult drama remain two of the most powerful reasons for viewers to keep paying their cable bills, but both are facing potential disruption. ESPN, a unit of Walt Disney Co., is planning to stream NBA games, while Netflix is challenging HBO's dominance in higher-end entertainment by producing its own shows, such as House of Cards and Orange is the New Black.
For its part, HBO has already edged into more direct forms of delivery with its HBO Go service, which allows cable subscribers to stream the network's TV shows on laptops and mobile devices. It's also signed a deal with Amazon to offer some of its content through the online merchant.
Investors are betting HBO's latest move will open up lush new profit opportunities, which is why the share price of its parent, Time Warner, surged 2.3 per cent following the announcement of the new streaming service.
It's move won't spell an immediate end to the pay-TV system that has produced lush profits in the past, but it serves notice to cable companies that the industry must change to reflect shifting technology and consumer tastes.
To quote that well known executive Tony Soprano: "We're in a situation where everyone involved knows the stakes and if you accept those stakes, you've got to do certain things. It's business."
With files from Bloomberg