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Apple's HBO Now Deal Has Been in the Works for a Year

Here's how it's going to work.

Vjeran Pavic for Re/code
Peter Kafka covers media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.

The Apple-HBO deal announced today was set in motion a year ago.

In the spring of 2014 — months before HBO would announce its plans to sell the pay-TV channel as a standalone subscription service — HBO CEO Richard Plepler had already reached out, via an intermediary, to Apple media boss Eddy Cue: Would Apple want to sell HBO’s service on the Web?

Of course Apple would. So the basic agreement for HBO Now came together quickly, according to people familiar with the deal.

There are obvious advantages for both sides: HBO, which doesn’t have any experience selling directly to consumers, gets to work with a digital distributor that already has more than 400 million credit cards on file — and has a customer service set-up in place to support all of those customers. (People familiar with Apple and HBO say the two companies will both provide support for the service, in different areas; Apple, for instance, will handle queries about billing.)

Apple, meanwhile, gets an exclusive window to sell one of the best-known brands in media, and will get a boost from the media blitz HBO will pay for to promote the service, as well as the Apple hardware that will support it — iPhones, iPads and the Apple TV. The service will also work on Web browsers, via an HBO website.

There will also be some money at stake: Apple usually charges app makers and publishers a 30 percent fee when it sells subscriptions to their content via its iTunes store. But Apple has different deals with Netflix and Major League Baseball for the subscriptions it sells via its Apple TV platform; I’ve never been able to get the details on those, but my hunch is that Apple may ask for more than 30 percent when it sells HBO.

HBO would have a good argument, since pay-TV providers usually keep about half of the HBO subscription fee when they sell the service.

Three months after HBO Now launches in April, other digital distributors will be able to sell the product too. It’s likely that HBO will have deals with platforms like Amazon, which already has a deep relationship with the programmer, as well as device makers like Roku.

The three-month exclusive does not apply to the pay-TV distributors that are already carrying HBO, which means it’s possible that Apple could be joined at launch by pay-TV providers like Cablevision or Cox, as the International Business Times has previously reported. But industry sources say many pay-TV providers have bristled at HBO’s plans to sell a standalone service, which weren’t announced publicly until October.

Plepler has been trying to convince distributors that selling HBO as a standalone service won’t cause their existing HBO subscribers, who get the channel as part of a bundle, to cut the cord — that is, to drop some or all of the other channels and just get HBO over the Web. Publicly and privately, HBO executives have argued that HBO Now is aimed at an audience of 10 million broadband subscribers who don’t get pay TV.

In an interview with Re/code, Plepler said pay-TV providers would benefit from selling HBO Now, bundled with broadband or other packages of channels: “This is not binary. This is multilateral. Nobody is doing us any favors launching an HBO Now over-the-top product in their broadband-only services but instead choosing to enhance their own business,” he said. “So we’re trying to make the logical argument that this is an additive proposition. And I think reasonable businessmen and women will see that as true.”

But Plepler said he wouldn’t wait on buy-in from the cable companies to launch the service. “You’ve got gold in the hills. We’re turbocharged for you to grow your business. Why wouldn’t you join us?” he said he has told pay-TV executives. “Now — if you think we’re going to get stuck at the door and not be able to have maximum flexibility in growing our brand — that, I’m afraid, is not a tenable proposition either.”

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