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HBO and Showtime streaming services won't pass savings on to viewers

HBO offers a streaming service, and Showtime is following suit, but consumers shouldn't expect a bargain

There's only one reason most pay-TV viewers in Southern California aren't watching Dodgers games: They're too expensive.

Time Warner Cable, which has exclusive distribution rights for the games, wants other pay-TV companies to charge subscribers as much as $5 a month for its Dodgers channel. Providers such as DirecTV and AT&T, which would receive about a third of that amount, say $5 is too pricey for their customers.

But what if you could cut out the middle man and get the Dodgers channel streamed directly to your home via the Internet? Wouldn't that bring the monthly cost down to a more reasonable $3?

Probably not.

And this illustrates a key problem for consumers as conventional pay-TV services collapse under their bloated weight and people increasingly switch to online services such as Netflix, Hulu, HBO Now and a new Showtime service announced last week.

Delivering movies and TV shows over the Internet might be cheaper and easier for content providers, but analysts say consumers shouldn't expect the likes of HBO and Showtime to pass along their savings to subscribers.

"As long as they have content that people want, they're not going to lower their prices," said Jim Nail, principal analyst at Forrester Research. "That would be like giving away money."

Or, to put it another way, he said: "Go find 'Game of Thrones' somewhere else. Oh, gee, you can't. You want it? You pay for it."

Showtime says its streaming service will debut in July and will cost $10.99 a month. HBO Now is available for $14.99 monthly. These are pretty much the same prices charged by pay-TV companies.

CBS, the parent company of Showtime, offers a stand-alone streaming service for $6 a month, and the premium network Starz reportedly is getting set to launch its own online offering.

In most other markets, cutting out the middleman and taking advantage of high-tech efficiencies results in significantly lower prices for consumers.

Buying three-month supplies of prescription drugs by mail, for example, will provide big savings for patients.

Low-overhead, online purchases are generally less expensive than bricks-and-mortar store prices. Exhibit A: Amazon.com's devastation of bookstores.

And look at music. Last year, revenue from cheaper music downloads and subscriptions overtook sales of CDs and other physical formats for the first time.

Yet when it comes to premium video content, analysts say, consumers should accustom themselves to paying the going rate, regardless of how they get the programming.

A big reason for that is because HBO, Showtime and other cable networks still receive the bulk of their cash from contracts with pay-TV companies, said Deana Myers, principal analyst with SNL Kagan.

"They don't want to cut into that business," she said. "That's their bread and butter, and they don't want to ruin it."

The last thing HBO and Showtime want is to provide a financial incentive for people to cut the cable cord, she said. Rather, they want to find a way to reach the estimated 10 million homes that have Internet access but no cable or satellite service.

"They're targeting new people," Myers said. "They're not trying to get people to switch."

Representatives of HBO and Showtime told me that they still have partners, such as Apple, to help with billing for their online services. But they clammed up when I asked if Apple gets as much as the roughly 30% cut that pay-TV companies receive.

As for pricing, the two networks say they're comfortable with how much they're asking from subscribers.

"We believe $14.99 to be the appropriate cost for HBO Now," said Jeff Cusson, an HBO spokesman. "This pricing is consistent with all ways someone can subscribe to HBO."

Trisha Cardoso, a Showtime spokeswoman, said "extensive market research" was conducted to determine that $10.99 "was optimal in terms of the perceived price/value relationship customers placed on the Showtime service."

That says prices of premium channels won't be going down any time soon. But consumers can expect some relief in the form of smaller, cheaper pay-TV bundles.

Dish Network's Sling TV seems like the model that others will follow. For $20 a month you get about 20 channels, including AMC, CNN and ESPN. Additional groups of channels can be added for $5 each.

Verizon's FiOS service followed with its so-called skinny bundle, starting at $55 a month, and Apple is said to be cooking up something similar.

"If the cable and satellite companies want to compete with streaming services, they'll have to offer new products," said Forrester's Nail. "Simply being the gatekeeper to hundreds of channels is no longer good enough."

Seems to me the pay-TV companies are going to have to get pretty darn creative.

With HBO and Showtime streaming online, even at inflated prices, cutting the cord has never looked so enticing.

David Lazarus' column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Avila. Send your tips or feedback to david.lazarus@latimes.com.

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