HBO Grow

Why CEO Richard Plepler Is Bullish On The Network, OTT And The Cable Industry
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Home Box Office, the premium service first envisaged by cable pioneer Charles “Chuck” Dolan while on summer vacation aboard the Queen Elizabeth II in 1971, is doing just fine these days. The network’s hottest show, Game of Thrones, has been renewed for a fifth and sixth season and is the lead performer in a stable of original programming that includes Veep, True Detective and Girls. The fantasy series, which has now dethroned The Sopranos as the most-watched series in network history, drew so many viewers to its popular HBO GO service, it briefly crashed the system. The premium network dominated Emmy wins again last year, with 27, and just toasted its biggest year of subscriber growth — 2 million subscribers — in 17 years.

The network responsible for most cable subscriptions in the industry’s salad days unveiled a groundbreaking exclusive deal last week to provide Amazon’s Prime Instant Video service with HBO programming, giving an over-the-top option to viewers. The deal, valued at $300 million by some estimates, makes life harder for rival Netflix, while preserving HBO’s option to one day sell directly to consumers.

At the helm of all this is 55-year-old Richard Plepler, who rose from the company’s public-relations ranks to become regarded as one of the most astute and strategically agile CEOs the service has ever had.

On a sunny spring afternoon in his office just north of Bryant Park in Manhattan, he sat down with Multichannel News editor in chief Mark Robichaux to discuss why he is excited for the cable industry, the growth of multi-device viewing and what’s ahead for HBO. An edited transcript follows.

MCN: The Amazon deal seems like a big departure from your long standing position that the only way to get HBO content is to subscribe to HBO. What happened?

Richard Plepler: That’s not true. We have always tried to monetize our library. We have a long history of syndication with Sopranos at A&E, Sex and the City at TBS and Band of Brothers on History Channel. As you know, Curb Your Enthusiasm is also out in syndication. This is just a natural strategic evolution of what we have tried to do. This was strategically for us the right partner. We have a vibrant electronic sell-through business with Amazon, a vibrant hard-goods business with Amazon. It was a good strategic fit for us, and enables us added flexibility and reinvestment in our brand.

MCN: How does that affect your other relationships with other MVPDs and other OTT players?

RP: It’s a win-win. What’s going to happen is that people that have never had a chance to sample our programming will now get that chance. I think we’re going to get more HBO subscribers. This will be good for their business and good for ours. This is a terrific marketing campaign for HBO which will ultimately redound to not only our bottom line, but theirs too.

Let’s be clear — you are not getting [all of] HBO on Amazon — you are not getting our theatrical movies; you are not getting the first, second or the third [season episodes] of our programming. You are getting our classics collection, if you will. This allows a larger base of people to see what we think makes the brand unique.

MCN: There does seem to be some expectation in the market that HBO will one day sell directly to the consumer “over the top.”

RP: We are always looking at the right model for HBO and right now, this is the right model for HBO — helping our partners continue to grow, growing our brand globally as well as domestically, enabling us to amortize the cost of our programming against 130 million subscribers around the world.

What I think HBO GO will enable us to do is pivot in any direction we want to pivot in. Right now, it’s an enhanced product, we look forward to working with our partners to continue to enhance their value proposition and I think we’re in a very exciting position. And in a multilateral world where you may have all diff erent kinds of viewing, we’ll be prepared for that.

MCN: Let’s talk about Game of Thrones for a second — it’s on fire. Has it really surpassed The Sopranos?

RP: It has surpassed The Sopranos in terms of viewership. But we don’t look at it as one show surpassing another in terms of cultural impact. Game of Thrones lives in its extraordinary place in the popular culture and Sopranos lived in its extraordinary place in the popular culture.

Are we thrilled with the resonance of the show not only here, but globally? Of course we are. And the credit, and I must punctuate this, is with David Benioff and Dan Weiss. And as proud as Mike and I and the team are, the salute is to them. They have produced, directed, written, developed this, along of course with George R.R. Martin, from whose books this extraordinary series comes. And we could not be more blessed than to work with creative talent at that level. And in addition to their enormous gifts as writers and directors and producers, they happen to be mensches, which makes it a particular pleasure.

MCN: That has helped you obviously grow subscribers, and this year was a good year for subscriber growth, yes?

RP: No one show triggers subscriber growth. People used to ask us all the time in the days of Sopranos, wow, you must have a surge in subscriber growth when Sopranos is on — those were the days when we had essentially two or three shows, only two or three shows. And the answer was actually not. It’s much more systemic than that.

I think what’s exciting now — and what I saw last year in my first year as CEO, and I had the privilege of spending time with our partners — is that we are a growth engine for our distribution partners. They’re growing their business and we’re growing our business.

MCN: Will that continue?

RP: We have some research, which we have just conducted and which we’re very excited about, which shows if you look at this as a political campaign, you realize you have core people who are voting for you, 43 million HBO/Cinemax subscribers. There’s always a group of people here who either, for content or for price or because they think they have enough programming, are never going to vote for you. The question that we wanted to explore is, “Where’s the undecided vote, and why are they undecided?”

Here’s what our research shows: There are millions of undecided voters, and when you go out and tell them and remind them about the value of this product, [output from] four Hollywood movie studios, 1,000 hours of library in HBO GO, the scale of our original programming — remember, everybody talks about the series, which obviously are the jewels in the crown, but our original movies, our sports programming, our boxing franchise, our documentaries, the range and scale of our programming — when you go out and punctuate that for our potential customers, they become likely subscribers.

But there are a lot of people out there who don’t really know what our theatrical movie advantage is. They actually think Netflix has more [first-run] movies. … When you explain to that customer, to that consumer, that we actually have four Hollywood movie studios, and they’re exclusively on HBO during our window, that’s very intriguing to people.

All of the sudden you’ve turned an undecided into a persuadable. And that is a very exciting bit of information.

So, we are going to be taking this research to our partners and talking to them about how we attack that undecided voter together, because there’s gold in them there hills, for us and for them.

MCN: What kind of growth do you expect over the next few years?

RP: We grew more last year, as you know, than any time in the last 17 years.

MCN: Two million subs, was it?

RP: Yes, and we are on track to grow robustly again this year. I can’t break it out any more specifically, obviously right now, other than to tell you we’ve exceeded where we thought we were going to be at this time of the year. And again, what’s exciting to me is the performance of our distributors across the board has been terrific. We are very optimistic about the year.

And in things like Internet Plus [AT&T’s $39-per-month service offering basic U-verse TV service, HBO and 18 Mbps broadband service, introduced earlier this month], we are evolving together with our distributors to grow HBO and to grow the entire category. So Internet Plus is yet another opportunity to reach into the potential subscriber base with a product that’s cheaper and where people can see and taste the value of our programming and of the value proposition of HBO.

MCN: Let’s talk about another thing that brings people into the service, HBO GO. That’s been enormously popular — what’s next for that service?

RP: HBO GO is a beautiful product. It is one of the great value enhancers that we have ever had in the history of the brand.

We have an extraordinary team of engineers led by [executive vice president of technology and CTO] Otto Berkes. The metaphor which I’ve used before is, if you look at us as a 340 BMW, we’re building a 750 IL BMW. It is going to be better and better all the time. I suggest to you that the product that you will see in a year or so will be materially different from the product that you currently see now.

MCN: So there was trouble in the HBO GO realm a few weeks ago — your system crashed briefly. What happened there?

RP: Our team has worked ferociously to improve that capacity and I think you noticed this weekend that we had no problems. It’s not to say that it’s a panacea, it’s just to say we’re improving it all the time, it’s becoming more resilient all the time and its capacity is improving all the time.

MCN: Web video in the U.S. is around 182 million users, and 283 million people watch TV. There’s skepticism about how big online viewing or device viewing really will be. So how big is this market?

RP: Here’s the exciting thing for us. We are building ultimate optionality for our customer. And if you just take a show like Thrones or take a show like True Detective, you probably have 85% or so, maybe 90% of viewing, either on demand or at different periods during the week. And you have probably about 10%, maybe even lower, viewing on [HBO] GO.

But say that that grows to 15% as the millennials watch more and more product on different devices. That optionality will be available for our subscriber. For us, what’s important is not how the universe changes but that we are there in whatever capacity it changes to to make it easier for our customer to watch HBO however they want to watch it.

So my kid, who’s 10 years old, is device-agnostic. She’ll watch The Voice on television, she’ll watch Dance Moms on her iPad and she’ll watch YouTube videos on her iPhone. Whatever the ecosystem evolves to, we will be there for our consumer.

MCN: Do you think there’s a natural plateau to the usage of these devices?

RP: My subjective sense is it’s going to come down to demographics, to generational habits. I think millennials will watch more and more shows on devices — but [Generation Xers] and [baby boomers], I think will continue to watch shows, are fully appreciated, on larger screens.

If somebody wants to catch up on John Oliver’s show [Last Week Tonight, which debuted April 27], or if somebody wants to catch up on a True Detective episode that they missed on their iPad, that will be available to them. The key for us is to offer that optionality.

Because you know what? No one knows exactly how this is going to evolve. And anybody who predicts that they do have certainty on whether the broadband only universe will go from 9.5 million to 15 million I think is stretching the truth.

MCN: Let’s talk about international, which is estimated to be about 25% of your business. Discovery is probably the only other programmer that’s really made inroads overseas while defraying the cost of some of the more expensive specials. How much success have you had overseas?

RP: We are in 70 countries around the world, we license into another 150. We have a “Home of HBO” in all the major Western European markets and in Australia and Canada.

A very exciting dimension to international, which is an output deal [in the U.K.] where they take all the HBO programming, they wrap it around what’s called Sky Atlantic, and they call it “Home of HBO.” Where we don’t have networks, it’s a terrific way to expand our brand around the world and we’re always looking for other appropriate markets to do that.

We see double-digit growth going forward. What’s very exciting to us is cable penetration continues to expand in Latin America, which is the biggest piece of our business; in Asia, where I was two weeks ago with our partners in Singapore; and in Central Europe.

In Brazil, which is our biggest market in Latin America, which is continuing to grow robustly, you have about 26%. Imagine, just extrapolate the potential of growing that by 10%.

When you talk to our cable partners and our satellite partners around the world, they see huge opportunity.

MCN: And what are audiences overseas watching?

RP: They’re watching a lot of our original programming, but their also watching movies. Movies are very big all over the world, particularly in Asia. When I travel and I sit with reporters from all over the world, the sophistication of their questions, not just about HBO programming but about the artists and auteurs who make that programming, is as sophisticated as when I’m sitting at the TCA in Los Angeles talking to American journalists.

MCN: More sophisticated than this?

RP: [Laughter.] Nothing, Mark, would be more sophisticated than this. But the extent to which the brand travels and resonates is quite extraordinary. And I think if you talk to our actors who are going around the world to promote the premieres on those networks they’ll tell you the same thing.

And because we own our stuff, we have the ability to leverage it all over the world. That’s great for business; it enables us to take our international profits, reinvest them in the brand, reinvest them in content, reinvest them in marketing and help continue to grow our business.

MCN: Let’s talk about the pay-per-view business, the boxing. You recently hosted a [Manny] Pacquiao fi ght. You’ve got a little more competition from Showtime these days. Is boxing a big part of your plans here?

RP: Absolutely. Boxing continues to be a vibrant part not only of the HBO Sports brand but of the HBO brand writ large. We had 21 of the top 25 [World Championship Boxing] fights last year. Our Boxing After Dark performed extraordinarily well, our ratings are at least two times our nearest competitor on both WCB and Boxing After Dark.

Manny continues, as will [Miguel] Cotto and others, to elevate the sport, continue to be exciting. And I think Manny’s one of the few people who can really continue to drive pay-per-view numbers to the levels we’ve been accustomed to.

MCN: What’s the status of your movie contracts these days?

RP: We have Warner Brothers, Fox and Universal. Fox and Universal are extended out into the next decade. And Summit we also have for the next few years.

What’s often obscured because of the amount of attention, rightfully, that our extraordinary programming receives in the popular culture, is the role of movies. Movies remain 78% of viewing on premium television. And 40% of our subscribers only watch movies.

And so while [original programming] is obviously the halo on our brand, movies are a seminal part of the customer experience and as you know we not only have those studios well into the next decade but we have the rights to move that product off linear and onto our digital platforms, which is huge.

MCN: I want to jump back just a second when we were talking about HBO GO and the popularity of the original programming. Do you worry about theft?

RP: I would differentiate the issues of password sharing from piracy. So let’s take them one at a time. Password-sharing is not as extensive a problem as some of the public narrative would suggest. It just isn’t. If it became one, our engineers as we speak are working on various alternatives to that and we would address it immediately.

Piracy we take very seriously. And while there’s not that much you can do on peer-to-peer sharing, it’s an issue we’re watching very closely. One of the proactive measures that we’ve taken has been to shrink the windows for our international viewing because most of the piracy is international. It’s an issue, we’re looking at it all the time. Our guys are taking down the sites as they see them. The good news is that while the noted statistic of Game of Thrones being pirated 1 million times picked up all the news, it’s important not to let that news subsume the lead, which is [that] somewhere around 15 million people are watching Game of Thrones legally in the United States and many millions more around the world.

MCN: As we head into the Cable Show, how would you rate the health of the industry?

RP: [Comcast Cable president] Neil Smit had a great quote, I thought, in an interview you did with him a number of months ago, where he said he thinks about two things — price and adding value. One of the exciting dimensions of HBO is I think we do add a lot of value for a very fair price. And I think one of the reasons that Comcast, as an example, continues to sell a lot of HBO, is we are one of the best vehicles to add value to the video package that they have.

The proof is in the pudding — that’s why we grew as much as we grew last year. Even though they were not all revenuegenerating, it shows you the health of the brand, it shows you the health of the category. Because they’re paying subs, you know?

MCN: What’s up next on the network?

RP: We have Normal Heart coming: Ryan Murphy directed a movie based on the Pulitzer Prize winning play starring Julia Roberts and Mark Ruffalo about the beginning of the AIDS epidemic and the apathy of the American body politic, indeed of America itself, about the crisis.

There’s show called The Brink starring Jack Black and Tim Robbins. Robbins plays the Secretary of State and Jack plays a punitive foreign-service officer in Afghanistan. I call it M*A*S*H in Afghanistan. And Jay Roach directed the pilot. Great fun, great satire, Jerry Weintraub is producing, very excited about it.

There’s Baller, starring The Rock, about aging athletes as they make their way into their new life, set in Miami Beach. Smart, fun, quite poignant actually.

Leftovers, created by Damon Lindelof, is about a group of people who survive a Rapture-like event — it’s not the Rapture, but 2% of the world’s people disappear on one particular day and Justin Theroux plays the lead, he plays the lawenforcement officer in the town. It’s one of the most compelling pilots that any of us have ever seen here.

Westworld is coming, also produced by Jerry Weintraub and J.J. Abrams. [Last Week Tonight with] John Oliver is coming next week, more immediately, could not be more excited about having John [a former correspondent for Comedy Central’s The Daily Show With Jon Stewart] in the house. I think that that show is going to make a lot of exciting noise not only for HBO, but in the popular culture.

We’re over the moon about it. We have more original programming on the network now than any time in our history. Three out of five of the top shows in our history. True Detective, the No. 1-rated fi rst-season show in our history.

I have to credit our extraordinary programming team lead by Mike Lombardo, the range of work that we’re doing, the line of talent at our door to do more, in my 21 years here, nothing has approached this.

Olive Kitteridge, Jane Anderson directing a miniseries starring Frances McDormand, I think, will be an incredibly elegant piece of material which we have very, very high expectations for.

On Cinemax, Steven Soderbergh has brought us The NIC, about a New York hospital set in 1900 starring Clive Owen. It is absolutely riveting to have somebody of Clive and Steven’s standing say to us we want to do this for Cinemax — I think that speaks to the evolution of the brand as obviously something more than just movies. And Banshee, which did over 2.7 million viewers, really has built a following, and I think NIC will only build on what Banshee, Hunted and Strike Back.

Cinemax continues to be a fantastic flanker brand and enhances the value proposition of the full subscription.

We’re really hitting on all cylinders and our job when we wake up every day is to continue to elevate, continue to improve, continue to evolve HBO.

Amazon Primed for HBO Subs

In a single deal, Amazon and HBO’s exclusive distribution deal last week changed the over-the-top syndication landscape.

HBO’s decision to offer a portion of its vast and popular original series lineup — including The Sopranos, Six Feet Under and The Wire — to Amazon Prime Instant Video, as part of a multiyear deal with the OTT provider, raises the ante for Amazon video rivals Netflix and Hulu.

Until now, shows such as Six Feet Under could only be seen on HBO’s premium channels, as well as its subscriber-authenticated digital service HBO GO. But the deal, estimated to be worth $200 to $400 million, according to a Bernstein Research analysis, gives the online retailer exclusive content that it hopes will boost subscriptions to its $99-peryear Amazon Prime service.

It could also dent the pace of Netflix subscriptions. Netflix, which ended first-quarter 2014 with 35.67 million subscribers, could be hurt by the increased competition from Amazon. “It is hard to see how Netfl ix gets to 60 to 90 million domestic subs, as management has suggested, with growing competition,” Bernstein said.

As for HBO, the estimated financial benefits may outweigh the loss of some cachet to the premium channel’s brand, now that once-exclusive titles are available on Amazon Prime. The network, however, has not included its biggest current titles like Girls, Game of Thrones and True Detective in the deal, allowing the network to maintain the value of HBO GO, which will soon be available on Amazon’s recently launched Fire TV digital streaming and gaming device.

It also doesn’t preclude the premium service from launching its own OTT service at some point down the line, according to Bernstein.

— R. Thomas Umstead

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