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HBO: An Argument for Subscription Based Content

Posted on January 22, 2008

Reading time: 2 minutes 30 seconds

HBO probably has the best shows on TV right now. Sure, you could debate me on that but I have to say that the shows I hear the most about from people (right now The Wire is in that category) and the ones I tend to enjoy on DVD (I don’t have HBO) are mostly HBO productions. Why is that? Is HBO simply better at finding talent and backing good ideas? Does HBO have some kind of oracle hidden in the bowels of their corporate headquarters? I think the answer is actually much simpler.

HBO has the best TV on the air right now because they are a subscription based service.

Yup, that’s right, I said it. The dreaded word in the online universe. Subscription…. OK, are you composed and ready to hear me out? Good.

Here’s the theory: HBO can make better shows since they aren’t worried about the audience coming to view the shows and they aren’t worried about advertisers (since they are a subscription service). Not only that, they know a lot about their audience (they have solid info from the subscription process) so they can simply make shows their audience will like without any distractions (distractions being things like what advertisers will want, etc.).

Let’s look at the audience piece of the equation first. Of course HBO wants to please its audience but it knows its audience well and can therefore make content that the audience will enjoy. What I meant when I said they aren’t worried about the audience coming to watch the content is that HBO has subscribers who pay for their content and who will then show up to watch it. This allows HBO to judge revenues in a more accurate fashion and also to quickly get an idea of which shows make sense and which don’t. The subscription revenues also lower HBO’s production risk allowing HBO to produce higher quality content and to take more risks on new edgy ideas.

Now let’s take a look at the advertising piece of the equation. Since HBO has paying customers and does not rely on advertising they don’t have to create shows that advertisers will feel comfortable with. This allows HBO to create more edgy and “real” shows. HBO also sees another benefit from their advertiser-less status. HBO doesn’t need to have a huge broadcast like audience to make a show work (don’t get me wrong - they have a lot of subscribers but their revenue isn’t as tied to eyeballs as the advertiser driven businesses). All they need is for their audience to like it and like it enough to continue to subscribe.

HBO seems to have a great model for producing content even though they do go against everything the web pundits have been saying for the last handful of years (i.e. content should be free). I do agree that making content free and monetizing it with ads makes sense but there are also inherent drawbacks like:

• The need for a huge audience to make a show work financially (we’re finding now that people like different things and aren’t all the same - crazy, I know).
• Large fluctuations in revenue due to shifts in ad spending (advertising is fickle).
• Sacrificing edginess and innovation in favor of creating things that are advertiser friendly (read: bland).
• The ad supply is not limitless and the more things that rely on that system the harder it will be to make money via advertising.

So perhaps creating niche, edgy, high quality content is a model that should be monetized via subscription rather than via advertising. Of course when you do create niche content you do get the benefit of a highly targeted advertising situation which means higher ad rates but that really only helps you if you’ve got content that brings in big dollar advertisers (i.e. content on tree frogs may not get you the high ad rates you want).

There I go again. Always the contrarian… I’d love to hear some thoughts in the comments section of this post both positive and negative. It could be that I am just missing something but it does appear that delivering high quality content is better done through a subscription model and that people are willing to pay for it (HBO has 40 million paid subscribers by the way).

Side note: HBO is also experimenting with delivering content via the web to their subscribers. Their subscriber based set-up should help them innovate on the web more quickly than studios who are worried about the advertising potential of the web. Interesting.