HBO's Distribution Strategy: It's All About the Timing

By Trevor Gilbert , written on June 25, 2012

From The News Desk

Want to set off a firestorm in the minds of tech bloggers? Mention iOS and Android in one sentence. Want to set off a nuclear firestorm? Mention HBO’s digital distribution strategy.

If you’ve ever read a tech blog before -- I’m assuming you have -- then you’ll realize that a lot of people care about HBO’s apparent disregard for the digital age. I’ve written about it before in favor of HBO’s strategy, MG Siegler has as well, as has Farhad Manjoo. In fact, most everyone who can put a sentence together has at some point weighed in. The most sensitive part of the argument is why HBO refuses to put "Game of Thrones" up for sale on iTunes or Netflix, when it is just so obviously the right move to make.

Which makes the free release of episodes of "Newsroom," "Veep," and "Girls" on YouTube even more perplexing. After all, if the company is so tied to cable subscriptions and bundling, and won’t even sell standalone subscriptions for HBO GO, why would it release episodes for free?

First, let’s look at the seeming illogicality behind the move. HBO won’t sell shows like "Game of Thrones" on iTunes until a full year has passed from the season’s debut. You can only watch HBO shows online if you are a paying cable subcriber that also pays for HBO. HBO Go is available on most of the big platforms, but you can only sign in and watch the exclusive content if you pay a cable subscription. On top of all of this, HBO has said publicly that it refuses to go the Netflix route without being paid a lot more money.

As I discussed in this previous post, it makes sense from an economics-based position. HBO is trying to find the right time to go digital-only, and it isn’t overly hasty to make that move. After all, the news world made that move immediately at the beginning of the Interent, and companies like the New York Times are now in near collapse. Then there’s the music industry, which waited far too long to distribute content digitally, and was thoroughly beaten by Napster for a time.

HBO is trying to find the middle ground between these two. It doesn’t want to kill the goose that laid the golden egg before it finds a replacement revenue stream. But it also doesn’t want to wait until the goose dies of natural causes. It’s all about finding the perfect time, and the perfect way to do it. The goal is a seamless transition from the old-world model of doing business to the new-world model.

According to Jason Hirschhorn, a longtime media follower and former industry executive who publishes a daily newsletter on the happenings in the media world, the perfect time to do this will be in about two years. At that point, the cries will be deafening for HBO and Time Warner to release the content on the Internet for a price. Of course, that could be an optimistic assessment, and HBO could continue to wait for years after that. But the crux of the matter is that it isn’t happening anytime soon.

And this makes the release of content on YouTube both strategically sound business-wise and sort of perplexing for the viewer. From the perspective of the viewer, it doesn’t make much sense that I can watch content on YouTube for free immediately after it airs, while I can’t download it on iTunes for months, not to mention the fact that some shows are available and some aren’t.

At the same time, customers that are currently paying for HBO and a cable subscription must be asking themselves why they’re paying that much extra, when content is presumably on the way to becoming free. If you don't follow the ins-and-outs of the industry, the scattershot strategy can be confusing from a viewers' perspective.

But from the company’s perspective, there's a definite method to the madness. A limited run of the content on YouTube provides a wealth of data for HBO, as it tweaks its digital distribution model. It also provides a marketing channel that allows the content to be spread across the Internet socially, which presumably drives traffic back towards HBO and the cable networks.

In fact, the marketing opportunity is likely the most important part about this distribution strategy. Putting the content up for free on YouTube allows new people to see the content, get a handle on the quality of the content, and then potentially become HBO subscribers. How many will become paying subscribers is still up in the air, but there isn't much of a downside for HBO if the number is small. The idea that it is a marketing move more than a strategic move was backed up by two others sources I spoke to.

All of this being said, watching HBO experiment with new distribution strategies is one of the most frustrating and most intellectually stimulating things happening in the media industry right now. There's a certain appeal to watching at how the business is operating and evolving right in front of us is fun to watch. But subjectively speaking, it’d be nice to be able to watch the show we want, when we want to.

But then again, webizens (myself included) are a pretty entitled bunch. So what do we know.

[Illustration by Hallie Bateman]