A quick outlook: the cable TV industry in the United States, and HBO as a great example of what a successful company in this field should be doing in order to stay competitive

1. Cable networks in the U.S. and
the HBO case
2014, Michael Kareev

2. Industry outlook
Revenue Annual growth, 09-14 Annual growth, 14-19
$56.0bn 1.7% 1.3%
Profit Wages Businesses
$3.9bn $6.4bn 425
Industry structure
Life cycle stage Mature Regulation level Heavy
Revenue volatility Medium Barriers to entry High
Capital intensity High Industry globalization Medium
Concentration level High Competition level Medium

3. Product segmentation and summary
26.8%
7.2%
1.8%
3.3%
33.6%
27.3%
Revenue segmentation
Specialty TV program advertising Network compensation
Local advertising Broadcast TV program licensing
National and regional advertising Other
Summary:
• Number of customers is growing proportionally
with per capita disposable income
• Increase in ARPU partially offsets overall drop in
advertising
• Availability of sports programs – key
• Internet-based services are getting stronger
• Infrastructure costs are decreasing
• Time available for TV viewing – limiting factor
• Multiplatform and a la carte – what users want
• Regulators: see TV Consumer Freedom Act 2013
and Canada case

4. Some problems/challenges in the industry
Viewers Landscape Ease of access
+ delivery issues
Competition Content acq-n
and production
costs
Regulators
Shortening
attention span
Decrease of
available leisure
time
Other means of
entertainment
(games is a
threat)
Bundle
plans, equipme
nt, various IDs –
turn users away
Internal
(Showtime) +
external
(Netflix, Hulu) +
piracy
The existing
model
presupposes
expensive
programming
TV Consumer
Freedom
Act, Canada
case

5. HBO essentials
• Revenue of $4.89bn (17.9% of TW revenues) and operating income of $1.79bn
• Strong emphasis on U.S., South America markets; lesser extent – Asia, Scandinavia
• Has around $30M U.S. subscribers
• Is known for high-budget programming
• Doesn’t rely on advertising
• Benefits from existing ecosystem (see next slide)

6. How it works
HBO HBO HBO HBO HBO
cable operators and HBO GO ITunes, Amazon Local players (Imedia)
viewers viewers viewers viewers viewers
$$
$
$$
$
• Pay per view
• Some
episodes
• Online or
download
$$$
What everyone wants:Existing models:

7. How HBO benefits from the existing model
• A big part of revenues arrives from subscribers: cable companies guarantee a specific number of
viewers and a sum to be paid in advance plus additional revenues from customers on top of that.
It helps to plan in advance and engage in capital intensive activities (Game of Thrones, etc).
• It is always easier to sell in bulk rather than going for individual customers (social campaigns, various
promotions that might hurt a brand perception)
• The majority of HBO viewers consume different content and do not actually require an “HBO only”
option; it is millennials who do
• Strong marketing support from partners: from additional advertising to 1-3 months of free HBO
programming for new customers; people are less likely to unsubscribe after watching for a while
• HBO doesn’t invest in infrastructure to deliver the signal (see Netflix’s costs on delivering HD overseas)
and doesn’t face the problem of the last mile

8. What should HBO do next?
Cross-production Expand Sports offering Seamless access
(technology)
Affiliate sales and
emphasis on metrics
Produce the content for
platforms (“pipes”) to
get better contracts in
return
Sports viewing is growing
faster than any other
category in the 18-30
age group, see Red Bull
case
Keep working in order to
form habits: one ID,
auto-authentification
Measure user
engagement and focus
on users’
multiconsumption
You either control the content or the pipes (c) somewhere from the Internet
Cross-promotion 2-way engagement Responsive ads and in-
movie branding
Go International
Partner with CNN (place
ads), Amazon (buy a
DVD, a t-shirt in one click
while a show is aired)
Games  TV (see
Electronic Arts),
influence the narrative
using mobile devices
Make ads on mobile
devices a part of
consumer experience
(see Mercedes case)
Do it through web apps
(Scandinavia case),
rather than through
partnerships; add ads

9. Sources used:
Allthingsdigital.com
Forbes.com
Quora.com
HIS
IbisWorld
Fiercecable.com
Hollywood Reporter
Nyt.com
Techcrunch.com
Tvb.org
Engadget.com
Timewarner.com