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HBO Channels into a New Market Opportunity

HBO recently unveiled a new strategy for how viewers can access its content. The premium cable network, best known for its original series, movies, and pay-per-view programming announced that in 2015, it will allow consumers to purchase an HBO subscription regardless of whether or not they already have a cable subscription. As a result of its new strategy, HBO is bringing itself into the B2C realm, but the insights that can be gleaned from this case are very applicable to the B2B world as well. HBO’s decision is a prime example of the importance of active channel management to drive strategy.

Over the years, Blue Canyon Partners has worked extensively with B2B companies to shift their channel strategies, whether it be to meet the changing needs of their customers, to respond to competitive pressures, or adjust to changes in their market environments. HBO’s jump into a new channel was driven by changing consumer preferences and growing competitive pressure from new market entrants.

Changes in Consumer Demand

Recent changes in technology have shifted the way consumer’s access television content. Mobile devices and in-home and out-of-home networks continue to make it easier for consumers to stream television programming online and watch it anywhere without the need for a cable subscription. These “cord cutters” make up a growing market segment of approximately 10 million American homes. This segment has realized that paying for a monthly cable subscription is no longer the most efficient way to watch television because oftentimes they end up paying for content that they will never watch. According to the Wall Street Journal, the average total cost for a monthly basic cable subscription is $55 so consumers who only watch programming on a few channels experience a tremendous amount of waste each month. These consumers are more inclined to pay for the channels they know they’ll watch in an “a la carte” subscription model.

Competitive Pressure

There are also growing competitive pressures that have forced HBO to rethink the way its content reaches consumers. Video streaming technology has allowed companies such as Netflix, Hulu, and Amazon Prime to thrive in recent years. The successes of these companies resulted in decreased revenues for cable providers and premium cable networks and it would not be surprising if more television programmers followed suit behind HBO (CBS already has and ESPN is considering it).

What are the Strategic Implications When Changing Channels?

HBO’s channel shift will result in a number of implications that are just as applicable to any company looking to modify its channel strategy:

  1. Despite shifting toward a consumer-direct channel, HBO will still need to carefully manage and cultivate its relationships with major cable providers in its traditional B2B channels. While the cord-cutting segment is growing, HBO still gains about $3.8 of its $5 billion of yearly revenue though subscriptions sold by cable companies. HBO will need to carefully manage and cultivate its relationships with major cable providers to maintain that revenue stream.
  2. HBO will also have to invest more in its marketing, customer service, and billing. These three areas are where cable companies add value to HBO’s product in the traditional model.
  3. HBO is also likely to develop new B2B relationships with broadband providers going forward, so it could offer HBO subscriptions bundled with broadband packages. Since HBO’s new segment will still need broadband access to consume television programming, it would make sense for HBO to use broadband providers as an intermediary just as it partners with cable providers in its traditional channel.

Rethinking Channel Strategy

HBO was able to change its business model due to very careful channel management. In our white paper, The Imperative for Active Channel Management, we show business-to-business companies how to determine where intermediaries add value and what new opportunities arise in a market. The framework uses a matrix to plot new market opportunities against the performance and abilities of intermediaries. Understanding both market opportunity and channel partner performance are crucial for businesses looking to target prosperous market opportunities that may require a channel shift.

In HBO’s case, a new, growing market opportunity was identified outside of the scope of its current channel. HBO determined that the market opportunity for customers who want to access HBO content, but don’t want to pay for a cable subscription was valuable enough that it was worth targeting that segment without the help of its channel. The cable providers that HBO traditionally used as its channel to end customers do not have the ability or the incentive to offer HBO subscriptions without cable subscriptions, so HBO adopted a new business model to capture the new market opportunity.

Businesses must understand the complexities and nuances of their channels to address potential new market opportunities. Looking at both the opportunity and the channel allows business leaders to work within a framework that can identify those opportunities that will be most valuable, and how to adjust their channel to capture it.

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