Compared to other over-the-top streaming services, HBO Now costs an arm and a leg at $15 a month. Some viewers are willing to pay that amount, which is comparable to the standard HBO subscription price for cable subscribers, but it might be too pricey for those cutting the cord for financial reasons.
For a bit more than $15 per month, cord cutters could subscribe to any two of the big three streaming services -- Amazon.com's (NASDAQ:AMZN) Prime Instant Video, Netflix (NASDAQ:NFLX), and Hulu. If they're feeling a particular need for live video streaming, Sling TV offers 22 channels for $20.
This may be why the Time Warner (NYSE:TWX.DL) subsidiary is surveying HBO Now trial users who canceled the service to see if they would accept a long-term subscription in exchange for a discount.
HBO Now for less than Netflix
One of the price points HBO asked about in its survey was a one-year subscription to HBO Now for $99.99. That's about the same price as Amazon Prime, and less expensive than Netflix's new monthly $8.99 price for streaming. With some of the best content on television, and new episodes added at the same time cable subscribers can watch them, HBO Now would pose a much bigger threat to the currently cheaper streaming services at the equivalent of $8.33 per month.
During Netflix's first-quarter earnings call, CEO Reed Hastings said:
I think HBO at $15 is a great value. ... It does create an obvious underline of just how great the value is of Netflix, with prices ranging from $7.99 to $11.99. ... But I think you should really think about it as all the Internet services -- HBO Now and Netflix and Hulu -- are great values in comparison to the big bundle.
While Netflix might view HBO Now and other streaming services as complementary rather than competition, limited budgets could prevent customers from subscribing to more than a couple streaming services. However, many subscribers supplement Netflix with Amazon Prime and Hulu, and those services would be more likely to feel an impact from a cheaper HBO Now.
Making enemies of its biggest supporters
Lowering the price of HBO Now significantly would likely negatively impact HBO's relationship with pay-TV providers. At $15 per month, HBO Now costs roughly the same amount, if not more, than what the average cable subscriber pays for regular HBO and HBO Go. Cable companies use HBO to get users to upgrade to more expensive channel tiers or at least hold on to users on the fence about cutting the cord.
HBO, therefore, gets tons of free advertising, and the cable operators handle its customer support as well. That's why when HBO launched HBO Now, it had to partner with Apple instead of cable operators, most of which refused to support HBO's over-the-top effort.
Offering customers a better deal for going over the top than customers can typically get with the cable company would hurt pay-TV operators. Even if customers don't completely cut the cord, it could lead to cord shaving and to operators dropping their promotions for HBO in favor of its competitors.
One important note is that HBO is positioning its long-term pricing as potential one-time only offers, indicating the charge is likely to rise to $15 per month after the initial promotional period. That should give it a little more leeway with cable operators, but it still sets a precedent the pay-TV guys might not like. For HBO, though, it provides a chance to add subscribers without a significant impact on its long-term revenue outlook.
Don't expect cheaper HBO Now right now
This pricing comes from a survey, so don't get your hopes up for cheaper HBO Now anytime soon. The company has much to consider aside from the consumer responses it receives from its questionnaire.
However, if HBO sees an acceleration in the number of subscribers dropping cable in favor of a la carte options such as Netflix, it might hedge its bets and offer discounts to compete better with other streaming services.
Adam Levy owns shares of Amazon.com and Apple. The Motley Fool recommends Amazon.com, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, 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.