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January 21, 2014

Take That, Netflix: For HBO GO, Password-sharing is a Marketing Tool

Password sharing: Everyone has done it…or knows someone who does it. After all, why would two roommates or family members or even good friends have separate video-streaming accounts when they can share a subscription? In the case of Netflix, this “mooching” phenomenon can eat into subscriber growth. But for HBO, it’s the equivalent of giving out free samples at the Costco.

HBO CEO Richard Pleper essentially said that it doesn’t bother the premium network at all that subscribers are sharing their passwords with non-account holders for the HBO GO service, which is the network’s TV Everywhere offering giving access to on-demand content on mobile and digital devices.

"It's not that we're unmindful of it, it just has no impact on the business," Pleper said at a recent Buzzfeed event.

Because HBO GO is an add-on to an existing household TV subscription, which is always tied to a cable, satellite or IPTV package, GO is not a money-maker for the channel anyway. It’s been used as more of a customer loyalty tool.

"HBO GO is value-added - what you want to watch,” he said. “Right now, that's the right model for us. Are we always thinking about optionality, of course we are always thinking about optionality... if the arithmetic changes and made sense in a different way we are not going to be caught without the ability to pivot."

So, unlike Netflix, HBO doesn’t put limits around how many people can stream the content from an account at any given time—understanding that password-sharing typically happens within a household (negating any cannibalization effects).

What password-sharing with those in non-HBO households does do, he added, is tease viewers into wanting more HBO—on their TV sets. It is, he said, a "terrific marketing vehicle for the next generation of viewers. We're in the business of creating addicts.”

The model is in stark contrast with Netflix, which is experimenting with new subscription packages in order to stave off lost revenue brought about by password-sharing. For Netflix, individual subscriptions are at the heart of its volume-based business model.

Netflix is trialing new pricing models, which could replace the $7.99 standard streaming with a range of options that are priced according to usage levels.

An individual plan for $6.99 allows one stream at a time from an account; and a $9.99 subscription allows for up to three people to stream on one account at the same time. The $7.99 tier allows two streams at a time; and an $11.99 per month tier, introduced earlier this year, allows for four streams at one time.

The new levels are merely in the trial stages, but if the uptake is there, it could help Netflix move families, apartment-mates and the like to the higher tiers. And, the $6.99 plan could ostensibly stave off moochers, who use other people’s Netflix accounts for free. It could also tease non-Netflix users into giving the service a whirl where they may not have otherwise done so, boosting that all-important customer pipeline that right now lives in the shadow of possible market saturation. The company already has 30 million streaming subscribers in the U.S.

Edited by Cassandra Tucker

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