The Amazon Deal With HBO

Apr 26 2014, 1:56pm CDT | by

The recently announced deal between Amazon and HBO in which Amazon will offer to its Amazon Primes customers much of HBO’s classic programming should be examined for its long-term implications. Are there any businesses that are liable to get hurt?

In staff meetings Amazon’s Jeff Bezos insists that there is always an empty chair that represents the customer, and that all decisions must consider the customer’s voice and preferences. So, what do customers want?  Most customers want lower prices, quality, convenience, fast delivery and a vendor they can trust. And Amazon strives to provide those benefits.

But Amazon recently upped the price on its Amazon Prime accounts from $79 a year to $99 a year, so the voice in the empty chair must be grumbling, “What do I get for the additional $20 a year?”

The answer is, “If I’m a Prime member, I can get a lot of fairly recent, fairly decent movies free (the first “Hunger Games,” e.g. and 15,344 other movies) and 1,156 standard-definition TV programs (“Duck Dynasty” and “Downtown Abbey,” e.g.).”

“But for $8 a month I can get from Netflix a few more movies (but few current big hits) and “House of Cards.”

“And for $8 a month I can get most of my favorite TV programs with commercials on HULU.”

“And for somewhere around $15 a month (maybe less, but it’s impossible to figure out from my Time-Warner Cable invoice), I can get HBO and “Game of Thrones” and other excellent programming. And with HBO Go on my iPad I can get all the past episodes of everything HBO has shown.“

“But for $8.25 a month for Amazon Prime ($99 a year), I can get most of the classic HBO programming except “Sex in the City,” “Game of Thrones” (which I can pirate online if I want to go to the considerable trouble to do so) and a couple of other old HBO shows, plus I get  two-day delivery on all the stuff I buy on Amazon.”

Thus, it looks like Bezos’s long-term strategy is to give customers a low price on entertainment content. By providing low prices, Amazon has put many bookstores, toy stores and other retailers out of business. But Amazon’s deal with HBO is just part of a larger trend of entertainment content being delivered over the Internet.

What companies will this trend put out of business?

  1. Cable TV companies, which will be reduced to being broadband Internet service providers as people cut the cord to get programming from alternative sources on the Internet.
  2. Broadcast TV networks, which will be reduced to being just owners of a bunch of TV stations as people realize they can get most of the TV programming they like from HULU or direct on the Internet from content providers such as Disney, which recently made a deal with the Dish Network to provide its programming, including ABC and ESPN, over the Internet to mobile devices.
  3. Aereo, assuming it wins its case in the Supreme Court. Aereo will be put out of business because TV stations will stream their programming to mobile devices free and sell advertising in the stream. Three weeks ago eight TV station groups announced a joint venture, named Pearl, which will deliver interactive TV content to LG smart television sets in three markets.

On April 3, Media Post reported:

Interactive content can include — for example — photo and map overlays or more information about news and weather reports, as well as personalized traffic information and content from the station’s own Web sites.

With regard to advertising, viewers can request coupons and more information from brands — including store locations. Pearl members include Cox Media Group, the E.W. Scripps Company, Gannett Co. Inc., Hearst Television Inc., Media General Inc., Meredith Local Media Group, Post-Newsweek Stations Inc. and Raycom Media. Schurz Communications is also investing in the interactive TV trial.

This joint venture is more than likely a test to learn about streaming local TV station content to smart TVs and mobile devices, which would bypass Aereo if it wins in the Supreme Court, and which the station group owners probably believe will eventually make more money by serving ads than they are currently making from retransmission fees from cable companies.

Content is king, and the king’s castle is now the Internet, as the Amazon/HBO deal reaffirms, and a lot of content delivery systems are going to be disrupted by the king’s move to his new castle.

The Media Curmudgeon (Charles Warner) teaches in the graduate Media Management Program at The New School and is the author of Media Selling, 4 th  Edition.

 
 

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