Cable-free HBO lets 'Thrones' fans cut Comcast cord

HBO is giving cable subscribers one more reason to cut the cord.

Time Warner Inc.'s premium-TV network, the home of “Game of Thrones,” roiled the industry yesterday by saying it plans to offer an online service in the U.S. next year that won't require a cable or satellite subscription. CBS Corp.'s Showtime said it may follow suit. The moves may be a threat to Comcast Corp., Time Warner Cable Inc. and DirecTV.

While there's no word yet on how much the new stand-alone HBO will cost, it's likely to provide a cheaper alternative for viewers who want to stop paying $50 a month or more for standard cable packages that include channels they seldom watch. With more and more programming available online without a pay-TV subscription -- from football games to Japanese animation to Netflix Inc.'s “House of Cards” -- consumers can increasingly choose to assemble their own assortment of video entertainment.

“This is bad news for pay-TV providers,” said Roger Entner, an analyst with Recon Analytics LLC in Dedham, Massachusetts. “They have 50 percent profit margins at stake. Without HBO, people won't necessarily subscribe to cable.”

Comcast and Time Warner Cable representatives declined to comment, and DirecTV didn't immediately reply.

AT&T Inc., which is buying DirecTV said it looks forward to continuing to work closely with HBO.

“It's clear that customers are looking for any number of content options for what they want to watch, wherever they are on any device,” said Fletcher Cook, a spokesman for AT&T. “That's why we offer a variety of choices, from pay-TV packages to niche over-the-top content to slimmed down offerings.”

The number of Americans who pay for TV through cable, satellite or fiber services fell by more than a quarter of a million in 2013, the first full-year decline, according to research firm SNL Kagan.

Tethered Online

The trend doesn't necessarily spell the end of the cable business, which still has about 99 million customers in the U.S. While the industry refers to people who shut off their traditional pay-TV service as “cord-cutters,” they're not really snipping their connections, since they still need a broadband Internet line to get streaming video. Cable companies like Comcast are among the biggest providers of high-speed Internet, and the revenue they lose from people who stop paying for video can at least partly be made up by charging for faster speeds and better connections.

What's more, many consumers will find that a traditional cable package still offers far more variety than a collection of pay-TV subscriptions. Comcast charges an introductory rate of $49.99 a month for its “Digital Starter” TV package with more than 140 channels, including MTV, CNN and ESPN. Compare that with a $7.99 a month Netflix plan, plus $6.95 for anime service Crunchyroll, $4.99 for Qello.com's live-concert subscription and a $199.99 season pass for online access to National Football League games.

‘Don't Worry'

The costs start to add up, though the a-la-carte model gives viewers the satisfaction of paying only for what they care about. Meanwhile, traditional cable subscribers bemoan the fact that they're paying for hockey games and reality shows they never watch.

Time Warner itself owns some of those traditional cable channels, including TNT, TBS and CNN. At a meeting with shareholders yesterday, the majority of questions from investors were about whether the HBO service would draw viewers away from cable, potentially hurting ratings for Time Warner's channels.

Chief Executive Officer Jeff Bewkes said he wasn't concerned. HBO will work with its distribution partners on the new service, he said.

“Our basic message today is just: don't worry,” Bewkes said. “It is not the premium services that are holding together the tremendous desire of consumers to get basic cable -- hundreds of channels.”

Low-Hanging Fruit

Still, the trends in video viewership have concerned Bewkes enough to persuade him to make a move. The number of broadband households without a pay-TV service has reached 10 million -- and counting, said HBO CEO Richard Plepler. About half of those are already paying for a streaming-video service, he said.

“That's low-hanging fruit,” Plepler said. “I don't think we're going to cannibalize anything.”

About 85 percent of Netflix subscribers also pay for cable, indicating that stand-alone HBO customers won't shut off their traditional service in droves, Plepler said.

To be fair, Netflix's earnings results yesterday don't signal an endless runway of growth for online streaming products. Netflix reported third-quarter subscriber growth that missed its own forecast, saying a recent price increase may have hurt signups. Now HBO and Showtime may be adding to the competition for online customers.

Internet Buzz

Of particular interest to the TV industry are younger viewers, who have embraced online video -- including using parents', friends' or complete strangers' passwords to watch HBO Go, the network's current online service for cable subscribers.

“Game of Thrones” is the most pirated TV program on the Internet, giving HBO an incentive to persuade viewers to pay to watch, Recon's Entner said.

After the network's announcement, HBO Go was one of the most-cited topics on Twitter, an indication of Internet users' fervor for the service.

Many companies, including satellite-carrier Dish Network Corp. and entertainment company Sony Corp., are developing their own streaming-video services to go after that younger generation. They're assembling online versions of cable TV by recruiting channels owned by Viacom Inc. and A&E Television Networks LLC.

“Cannibalization is going to occur,” said James McQuivey, an analyst at Forrester Inc. “It's just a question of whether or not HBO wants to participate.”