Comcast (NASDAQ:CMCSA) recently blocked Sony (NYSE:SNE) PS4 owners from accessing Time Warner's (NYSE:TWX.DL) HBO Go, although all other ISPs let it through. This decision probably didn't surprise PS4 owners, since Comcast previously blocked HBO Go on the PS3, but it certainly feels like an anti-competitive move intended to protect Comcast's cable business.
Why did Comcast block HBO Go on PS4s, and what does it mean for the upcoming launch of HBO Now, Time Warner's stand-alone streaming service?
Why Comcast is worried
Access to HBO Go is still blocked on Amazon's (NASDAQ:AMZN) Fire TV on Comcast networks. Roku's HBO Go and Showtime Anytime apps were similarly blocked until the companies filed a complaint against Comcast with the FCC last December. Netflix (NASDAQ:NFLX) previously accused Comcast of throttling its streaming speeds, but it eventually agreed to pay the ISP for faster "direct access" to its network last February.
All these roadblocks were clearly intended to protect Comcast's cable TV and broadband Internet services. Revenue at Comcast's Cable Communications business rose 5.5% year-over-year to $44.1 billion in 2014, accounting for 64% of Comcast's top line.
These streaming services threaten Comcast in three ways. First, they encourage customers to ditch pricey cable bundles in favor of stand-alone streaming services like Netflix and Amazon Prime TV. HBO Go can't be accessed without subscribing to the cable version, but that requirement will be dropped when HBO Now launches.
Second, streaming video providers reduce Comcast's cable revenue but increase its broadband expenses with higher bandwidth usage. Lastly, newly approved net neutrality rules state that no ISP can block online content, selectively slow down traffic, or offer companies and customers paid "fast lanes". This leveling of the playing field could cause Comcast's cable and broadband margins to contract.
How Comcast justifies its actions
Here's Comcast's official explanation for blocking HBO Go on the PS4:
"With every new website, device or player we authenticate, we need to work through technical integration and customer service, which takes time and resources. Moving forward, we will continue to prioritize as we partner with various players."
However, TechDirt speculates that Sony probably didn't agree to pay Comcast a "fee" for the perceived cannibalization of its cable TV content. For example, Roku's HBO Go app was allowed through only after it signed an undisclosed deal with Comcast.
If true, that could constitute a violation of the new net neutrality rules and the "TV Everywhere" initiative, which lets customers access streaming cable content online as long as they are cable customers. Whereas TV Everywhere was designed to let customers quickly log in to companion streaming services, Comcast is apparently using the framework to block access from certain hardware.
Is the negative publicity worth it?
Blocking PS4 access to HBO Go certainly won't improve the public's perception of Comcast, which Consumerist named the "Worst Company in America" in 2010 and 2014. Over the past year, Comcast has been hit by a lengthy stream of embarrassing customer service debacles. Therefore, raising the ire of PS4 owners seems like a poorly timed move, especially with the launch of HBO Now is right around the corner.
If the FCC clears Comcast's proposed merger with Time Warner Cable (UNKNOWN:TWC.DL), the combined company will respectively control 57% and 30% of the U.S. broadband and pay TV markets. However, Comcast's recent conflicts with set-top box makers and streaming video providers indicates that a merger with Time Warner Cable might not be in the best interest of consumers.
How will Comcast react to HBO Now?
Time Warner likely isn't thrilled that Comcast prevented millions of PS3 and PS4 gamers from streaming episodes of Game of Thrones between hardcore gaming sessions. That's probably why it launched HBO Go -- to distance itself from Comcast while taking aim at Netflix and Amazon.
Since HBO Now won't require a cable subscription, Comcast customers could be encouraged to ditch the Xfinity TV component of its bundle in favor of broadband-only services. However, cable companies will likely raise prices across the board to offset those losses, unless Comcast, AT&T, Verizon, and Time Warner Cable are challenged by meaningful competition in home broadband.
Comcast won't be able to block HBO Now across select hardware in the same way it did with HBO Go. However, I wouldn't be surprised to see a Netflix-like bandwidth dispute eventually erupt between the two companies, despite the passage of new net neutrality rules.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Netflix, and Verizon Communications. The Motley Fool owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.