HBO's Bold Broadband Plans

The premium channel may offer its wares onlinea move that could rankle cable and satellite operators

Just about every TV network worth its satellite transponders has rushed to the Internet in recent months. Thanks to the out-of-nowhere popularity of YouTube and the proliferation of broadband, all kinds of shows are popping up on the Web, from Lost on (DIS) to Fox's The OC on MySpace, owned by Fox parent News Corp. (NWS).

Conspicuously absent from that list: Home Box Office, Time Warner's (TWX) multi-Emmy-winning premium cable service. But that won't be true for long, say sources in media and technology. And if HBO takes on the Internet presence expected in the coming months, it could cause no small dustup with some of HBO's biggest customers—namely the cable and satellite companies that charge fees for beaming HBO movies and shows such as The Sopranos and Entourage into America's homes.

HBO executives have been hashing out the details of what they will offer online, and a spokesman says no formal decision has been made. But programming will almost certainly be offered via a subscription service, much like the mixture of HBO movies and original fare such as The Wire, Deadwood, and Big Love now offered by cable and satellite operators for a monthly fee of $10 to $12 or more.

Cable Competition

There may also be features that let users download HBO programming to other devices. HBO now provides full-length episodes of programs such as Entourage and Sex and the City to customers of AT&T's (T) Cingular Wireless for $4.99 a month, but this would be the channel's first move onto the Web.

Where a new HBO service gets sticky—and why it has taken so long to put together—is that a new broadband offering would put HBO into competition with the cable and satellite operators that now pay the bulk of the estimated $3.5 billion a year in revenues HBO generates. Those "affiliates" generally pay HBO around $6 a month for each of its nearly 30 million subscribers, according to cable industry analyst Kagan Research. The arrangement generated $863 million in cash flow last year.

So HBO would rather do any Web package with the help of the Comcasts of its world. "We're examining various distribution [possibilities], including broadband platforms, but have yet to determine which is the best model for our business," says the HBO spokesman. "We're having conversations with cable affiliates as well as all of our distribution partners, and together we will explore all of our opportunities in that space."

Everybody Online

If HBO decides to launch its own broadband channel, it would no doubt learn from the experience of one of its competitors, the Starz service. Starz, a unit of John Malone's Liberty Media Corp. (LCAPA), launched its $9.99 a month Vongo service in January with more than 1,000 movies and TV shows, but no cable partners. It has now bumped up the service's offerings to more than 2,000 movies and TV shows, says a spokesman.

Consumers can stream Vongo programming or download it to as many as three electronic devices. But Starz, which has 15.1 million subscribers and an estimated $1 billion in annual revenues, doesn't disclose how many Internet subscribers it has signed. Industry insiders say Starz has been talking to its cable affiliates in a bid to improve the take rate. A Starz spokesman acknowledges only that the service "continually talks to its partners."

An HBO broadband offering would join a field that's getting more crowded by the moment—and apparently enjoying some success among early adopters. The Disney Channel (DIS) says it has streamed more than 48 million episodes of shows since launching its broadband service in January. To capture a decidedly edgier audience, Sony (SNE), MGM, and Comcast (CMCSA) launched their own broadband horror movie site, FearNET, on Oct. 30. But the world of broadband TV viewing would get a big boost when HBO, which annually wins a slew of Emmys and enjoys the industry's heftiest profit margins, makes its long-awaited entry online.

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