According to a recent article in the Economist (“The winning streak: HBO and the future of pay TV”), HBO (Home Box Office) is facing a complex, ever-changing climate, with more innovative competitors than ever before. Even though HBO is critically acclaimed, wildly popular and highly profitable (104 Emmy nominations in 2011, 28 million subscribers, $4 billion in annual revenues, responsible for ¼ of the operating profit of its parent corporation Time Warner), it still needs to adjust to make sure it stays relevant to the rapidly changing market for TV entertainment.

HBO has become known for setting the standard for smart, intense, “adult” television that doesn’t have to meet the limitations of broadcast TV – many writers claim that HBO offers them far greater creative freedom.

As a result, because of this creative freedom, HBO is a creative playground of choice for some of Hollywood’s top talent. Screenwriter Alan Ball worked with HBO to produce the show “Six Feet Under” soon after winning an Oscar for the film “American Beauty.”

3 factors causing HBO pressure:

  • Eroding consumer buying power: The economy has taken a toll on the disposable income of millions of middle-class American households, making people less willing to pay for TV. According to the Economist article, in 2010 the proportion of Americans that pays for television dropped for the first time ever. Many Americans are looking to cut spending in any way they can, and cable TV (and especially premium subscriptions like HBO) are often at the top of the list for spending cuts.
  • The end of the “home box office?” Although HBO is best known in recent years for its award-winning original TV series, a large part of its programming schedule consists of broadcasting movies – hence the original “Home Box Office” name. But this movies-on-TV business model is coming under pressure in the age of Netflix instant video streaming and video-on-demand. People have more choices than ever for how to watch movies, sooner and sooner after they are released in theaters, and they don’t need to subscribe to HBO to do it. We’re reaching the point where everyone has the ability to create their own personal “home box office.”
  • New competitors for premium TV: At the same time, HBO is facing intensifying competition in the original TV production business. Showtime and Starz have created critically acclaimed TV series of their own, like “Dexter” and “Weeds.” AMC has launched hit shows like “Mad Men,” “Breaking Bad” and “The Walking Dead.” Even Netflix is getting ready to introduce its own original series in 2012 called “House of Cards,” starring Kevin Spacey and produced by David Fincher (director of the film “The Social Network”) which won’t really be on “TV” at all – it will be available to Netflix’s instant streaming customers.

HBO still has a very strong brand. But “brand” alone is not enough to help companies overcome their challenges. Brands can lose relevance with customers for all sorts of reasons that are often beyond the control of the brand managers.

When working with companies, I often start the presentation by asking them, “Do you have a brand?” They say “Yes.” Then I ask, “Does your competition have a brand too?” They say “Yes.” Then I say, “Oops, now what?” Companies sometimes lean too heavily on brand. The worst mistake HBO could make would be to assume that “we’re HBO, and no one can do what we do better than us.” Because the fact is, the trends in technology and consumer behavior all point to a growing diversity of media channels, and greater ease for consumers to access the content that they want to watch, when they want to watch it – without having to wait for HBO’s programming schedule.

What HBO is doing to compete: “HBO Go”

HBO’s business strategy for the future appears to be centered on its new online streaming service, “HBO Go,” where subscribers can get on-demand access to HBO’s original TV shows, often before they air on TV. In the future, HBO could potentially sell its shows directly to customers, without even needing to rely on paid TV subscriptions.

As the pay-television system comes under strain, HBO is wise to consider creating its own platform to sell its content directly to the people who watch them.

The future of television could look very different in another 10 years. The same is true for your industry, whatever business you’re in. Are you making the adjustments today that will help you stay relevant tomorrow?

 Chart via: Business Insider

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