According to HBO CEO Richard Plepler, the company has an opportunity to reach 50% penetration of homes in the US. Reaching that goal requires a lot more growth because HBO is in around a third of homes today.
HBO grew subscribers an impressive 5 million in 2017. Moreover, Mr. Plepler says the 35% of the company’s growth has come in the last five years. Performance such as this is likely the reason Mr. Plepler believes he can ultimately drive the service into half of US homes:
However, where is all that growth coming from today, and where is it likely to come from in the future?
HBO Now growing strongly
HBO launched its direct-to-consumer online service HBO Now in April 2015, after several years of relatively little subscriber growth for the premium channel. It took the company almost two years to reach 2 million subscribers. However, 2017 was a watershed year for the service. The company saw subscribers climb from 2 million in February to 5 million by the end of the year.
The increase of 3 million subscribers in HBO Now helped propel the channel to its best year of subscriber growth ever, increasing by 5 million. So, where did the other 2 million subscribers come from, and how will it get to 50% penetration?
Traditional pay TV unlikely to help
If HBO saw any subscriber growth from traditional pay TV operators at all last year, it was minimal. Cable, satellite, and telcoTV operators are shedding subscribers at a steady clip. They lost around 3.5 million in 2017. However, their customers are also dropping premium tiers like HBO to save money. Mr. Plepler says that his best pay TV operator partners have HBO in 50% of customer homes. However, deepening penetration of a shrinking market may not result any growth at all.
vMVPDs an important part of HBO’s growth
Virtual MVPDs like Sling TV and DirecTV Now allow customers to subscribe to HBO through their services. For example, a DirecTV Now customer can add HBO for just $5 a month. Sling TV and PlayStation charge the standard $15 a month.
In 2017, vMVPDs grew strongly. Sling TV finished the year with 2.2 million subscribers, up 40% from one year earlier. DirecTV Now ended the with 1.46 million subscribers, up from 200,000 one year earlier. Assuming the same penetration level of vMVPDs as regular pay TV, HBO could have more than a million subscribers coming from Sling TV and DirecTV Now. Penetration at DirecTV Now could be even higher, with HBO through DirecTV Now costing a third of HBO Now.
The number of HBO subscribers from vMVPDs is likely higher still. PlayStation Vue and Hulu Live both allow customers to subscribe to HBO. However, neither Sony nor Hulu have announced how many subscribers they have to their vMVPD services.
Around half of traditional pay TV cord-cutters sign up for a vMVPD. As cord-cutting accelerates, expect vMVPDs to continue strong growth for some time to come.
YouTube TV could deliver a big bump in subs
There is one major vMVPD that currently doesn’t have a reseller arrangement with HBO: YouTube TV.
Google does not report how many subscribers it has for YouTube TV. However, in the Q4 2017 Video Trends report from TiVo 8.5% of survey participants said they were using the service. 3.8% said they used DirecTV Now and 2.3% used Sling TV.
We should perhaps treat the YouTube TV number from TiVo cautiously. It is possible some survey respondents confused YouTube TV with YouTube on TV. That said, even if YouTube TV has just half the number of users as TiVo indicates, it is still the new category leader and could have 2-4 million subscribers.
Currently, YouTube TV allows its customers to subscribe to Showtime for $11 a month. With millions of potential subscribers at stake, I expect Mr. Plepler and his team are hard at work on a deal with YouTube TV.
Why it matters
HBO believes it can grow subscribers from one-third to one-half of US homes.
Traditional pay TV operators will not materially contribute to that growth.
HBO Now is growing fast and will be an important part of the growth mix.
Virtual MVPDs are also growing fast and will also help HBO reach its stated goal.