HBO Goes Digital on iTunes

Monday’s rumor is Tuesday’s fact. It’s now official: HBO programming will air on Apple’s (AAPL) iTunes under a variable pricing model. Taking advantage of routine “iTunes Tuesday” updates, the Time Warner (TWX) network and Apple confirmed the suspicions.

Effective immediately, iTunes will host HBO programming. Breaking tradition, the shows will cost either $1.99 or $2.99 per episode. Current programming from other outlets is currently priced at just $1.99. Most of the shows offered (Sopranos, Deadwood) do robust DVD sales and part of the justification for flexible pricing seems to be to reduce the potential for channel conflict between the two different distribution methods. At $2.99, the increased price won’t erase the “digital discount” but it will make price differentials between DVD buys and Digital Downloads less dramatic.

Given HBO’s affiliate relationships and the need to work within the bounds of subscriber/affiliate contracts, another concession will be scheduling. Accordingly, unlike traditional TV offerings, the HBO programs won’t air on iTunes until after the completion of their season. Specifically, programs will be offered at the same time they are issued on DVD.

This “day and date” approach will correspond with deals Apple made with major movie studios last week to bring many movies to iTunes for digital download on the same day as their DVD release.

iTunes currently hosts more than 800 different shows and has sold more than 150 million episodes. Though it accounts for less than 10% of Apple’s revenue (last year), it does help drive customers to Apple products.

For the immediate term, HBO will be the only content provider offering premium priced content at iTunes (in the US) but that is likely to change. Already, in the UK, Apple has been exploring a similar staggered pricing model with NBC Universal programs (NBC Universal remains missing from iTunes US after the companies had a fallout last summer but it appears that riff is being mended).

Further adding cover to expectations for wider flexible pricing initiatives were face-saving words from Eddy Cue, Apple’s VP of iTunes. Backpedaling from past corporate statements against flexible pricing, he said in an interview, “I don’t think it’s a shift in strategy — I view this as an extension of the strategy we’ve had."

For most programs, iTunes will also sell complete seasons of the HBO but it will take some time for them all to reach the store.

The timing of Tuesday’s announcement seems like it was calculated to play off any existing buzz building for the upcoming release of Sex and The City: The movie. It’s scheduled for a May 30th premiere.

Comments

[seeksome]

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[investorslive]

AAPL is always going to have the "next" revenue stream, just look at American Idol, huge partnership, they've got there hands in everywhere

www.investorslive.com/.../

[Brewer]

HBO shows are worth $3, unlike NBC shows. A lot of HBO shows are one hour length, whereas most of the NBC content is 1/2 hour. NBC is partnered with Microsoft, which explains their desperate move to Zune, etc... If only there were people using Zunes, that might make sense.