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HBO's timid iTunes offer

Ituneshbo_screen_grab Time Warner subsidiary HBO has gotten a fair amount of credit today for persuading Apple to abandon its one-price strategy for TV shows at the iTunes Store. That's an interesting development, and it could open the door for NBC to bring its shows back to the store. But what many of the reports overlooked was how little HBO decided to put onto the virtual iTunes shelves. The network is making available downloadable versions of older shows only, and charging premium prices for many of them to boot. Rather than trying to attract new customers and chase incremental dollars, it seems to be designed to cause the least possible offense to HBO's existing markets.

HBO spokesman Jeff Cusson said the network's full offering on iTunes will roll out over the next couple of months, so it will be more extensive than the current selection -- six shows, most of which are represented by just a portion of their episodes. But no show will be available before the corresponding full-season DVD is released, Cusson said. That's consistent with HBO's digital strategy thus far: no full-length program or episode is available online to non-subscribers until long after its first run. The exception was "In Treatment," which HBO offered briefly in full-length form on YouTube earlier this year in a bid to drum up viewership. Now, though, even that show is available only as clips.

Showtimeitunes_screen_grab Cusson declined to discuss HBO's strategy on the record, but I did get some insights from one of his networks' competitors. Showtime was among the first networks to take advantage of the iTunes Store when it debuted in 2006, and until HBO arrived, it was the only one to hold episodes back until after the entire season was over. Robert Hayes, general manager of Showtime Digital Media, said the delay reflects the network's concern that people would watch shows online instead of subscribing. "We're a billion-dollar-plus business," Hayes said. "Our main revenue stream is subscriptions.... [The delay] is kind of keeping that experience pure."

So why bother with iTunes at all? The amount of revenue is small even compared to DVD sales, let alone subscriptions. Hayes said the point isn't to generate revenue at iTunes and its other digital outlets, it's to recruit new subscribers by letting people sample Showtime's fare on the cheap. "It's a great opportunity for us to tap into a younger demographic," he said, noting that the audience for premium cable networks skews older. "We've introduced our programming to audiences that probably never would have watched it." These viewers may be coming late to the shows, but they like what they're seeing enough to talk up the product and, in some cases, subscribe. Showtime's customer base has grown over the past 18 months, Hayes said, and part of the reason is its work online.

Still, I can't help seeing reflections in Showtime and HBO's approach of the major record labels' failed strategy of diminishing the appeal of their online products to protect CD sales. Realistically, would anyone drop a subscription to a premium channel if he or she could watch episodes online for a fee? That might be true if the networks were the video equivalent of a Top 40 album -- in other words, if they offered one good show amid endless amounts of filler -- but I just don't see that happening with HBO or Showtime. For those who already have cable or satellite service (more than 80% of all U.S. households), subscribing to HBO or Showtime is clearly a better deal than buying individual episodes a la carte or on DVD. By trying so hard not to cannibalize their subscriber bases, HBO and Showtime prevent themselves from competing effectively with other online outlets for viewers who aren't subscribers today. After all, there's no shortage of ways to watch the networks' most popular shows online without paying for them. And the task of recruiting and retaining subscribers will only grow more difficult as people spend more time online and consume entertainment from a wider array of choices. The fragmentation of the TV audience caused by home video, game consoles and an explosion of cable channels will soon be exacerbated as TV manufacturers add Internet connections to their sets. That's why it makes sense to try to attract viewers with your best and most heavily promoted content wherever you can find them, rather than using the Net solely to promote business models developed long ago.

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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