Kessler: HBO Go Has Delivered 98 Million Video Streams

Exec 'Optimistic' Premium Net Will Cut TV Everywhere Deals With TWC, Cablevision
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HBO's "TV Everywhere" service has pumped out 98 million video streams to subscribers to date, with most of the usage occurring in the last six months, according to co-president Eric Kessler.

While the premium net still hasn't reached deals with two of the biggest operators -- Time Warner Cable and Cablevision Systems -- Kessler said he was "optimistic" the parties would eventually come to terms.

"We are definitely making progress," Kessler said. "As we said before we are optimistic that we'll reach an agreement with all our affiliates."

Kessler, speaking at the VideoSchmooze NYC event here Wednesday, declined to discuss details of the sticking points with TWC and Cablevision. "The issues and the questions that come up from the distributors, they're all similar," he said. "It's taking a few months longer [than expected], but we take the long view and ultimately we think it will happen."

It took HBO around seven years to get VOD distributed across 90% of its affiliate base, Kessler noted.

HBO Go is currently available through eight of the top 11 pay-TV providers, including Comcast, DirecTV, Dish Network, Charter Communications, Cox Communications, Verizon FiOS, AT&T U-verse and Suddenlink Communications. "This product, over time, will be an integral part of how people view HBO," Kessler said.

Even among affiliates that offer HBO Go, however, there's still negotiating to be done. Comcast and DirecTV, for example, currently do not allow their subscribers to log in to the service through Roku's Internet set-tops. According to sources familiar with Comcast's strategy, HBO has not yet agreed to all of the conditions the MSO requires of TV Everywhere partners, such as how subscriber information is handled on a third-party device or website.

Kessler said it's still too early to determine how effective HBO Go -- which is included as part of the monthly subscription fee -- has been in retaining subscribers or attracting new ones. "But given the positive response, we think it can mean nothing but good things for the [subscriber] lifecycle down the road," he said.

Over the course of a year, HBO has 10 million subscriber transactions (adds and disconnects) through its affiliates. The programmer has about 29 million U.S. subscribers. "As with all subscription businesses with a lifecycle, you're trying to extend the lifecycle," Kessler said. "If you can increase the lifecycle by a month, two months, three months... times our wholesale rate, that's a lot of money."

In May, the network launched HBO Go apps for iPhone, iPad and Android smartphone devices. Since then, customers have downloaded the apps about 5 million times. The service provides 1,600 hours of TV shows -- including every episode of HBO's original series -- plus movies, documentaries, specials and other programming.

Previously the service was available through HBOGo.com, and "we had minimal usage and minimal awareness." HBO treated the debut of the mobile apps like a movie launch, Kessler said: "We needed to make it an event."

Kessler reiterated that HBO has no plans to license streaming content to Netflix. "That's not something we're going to do... People say, Why don't you license to Netflix? That's like asking, Why don't you license to Showtime?" he said. "Netflix is frankly a pay-television service. We don't, and we won't, license to a service like that."

Versus Netflix and other online video services, HBO focuses on quality, not quantity. "The content on those services, it's basically nonexclusive," Kessler said. "We believe there is value in exclusivity."

So far HBO has found the threat of cord-cutting to be "minimal," and largely the result of macroeconomic conditions, according to Kessler. He noted that HBO subscribers watch 14% more television -- 19 hours more per month -- than non-HBO households. "We've found HBO subscribers are the last people to cut the cord. They just love television."

About 55% of HBO Go viewing is on desktops or laptops, with the 45% on mobile devices. Of the mobile usage, 55% is on iPads; 25%-30% is on iPhones; and the remainder are on Android phones. Kessler said HBO plans to debut an app for the Android 3.0 operating system (Honeycomb) for tablets in the first quarter of 2012.

In terms of what subscribers watch, 70%-72% of HBO Go viewership been original programming, compared with 33% on linear and 43% on video-on-demand. The movies HBO Go users watch are mostly recent: 80% are movies produced in 2009 or later, according to Kessler: "They are not watching library content."

Kessler was interviewed by Will Richmond, editor and publisher of VideoNuze, who produced the event.

Richmond asked if the programmer had any reservations about how HBO Go would affect DVD and digital download sales, given that every episode of every HBO original series is included in the service. Kessler acknowledged that it was a concern, but he said HBO believes that the benefit to the core linear TV business will more than offset any losses on sell-through.

"The way we rationalized it was, what drives the economics of our business is linear -- it's 80% of our revenue," he said.

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