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What the Jon Stewart deal tells us about HBO

Comedian Jon Stewart.
Getty Images
Comedian Jon Stewart.

By bringing Jon Stewart on board for a digital production deal, HBO is strengthening its online position to ensure its company survives the rapid cord-cutting phenomenon, analysts believe

"Cord cutting and cord tapering is taking place, despite what many in the industry have said," said Greg Ireland, IDC's multiscreen video research director. "We saw a 600,000 subscriber decline in the paid-TV market in the first quarter of this year. It just further bolsters the fact we're seeing the erosion of the traditional paid-TV subscriber base."

The premium cable network announced on Tuesday it has signed Stewart to a four-year digital production deal, focusing on short-form content. It marks the former "Daily Show" host's first gig since leaving the Comedy Central program in August.

"We're seeing across the board, from Amazon and Hulu, more original productions for digital distribution," said Forrester analyst Jim Nail. "It's all part of this bigger trend of where consumers are going these days to get the kind of video entertainment they want. It's obviously not all prime-time traditional network shows."

In April, HBO released its digital-only streaming platform HBO Now. Previously, the only way to access its content was to purchase a cable subscription. Now, consumers who no longer have cable service can subscribe for just digital access. MoffettNathanson Research estimated that between 970,000 and 1.9 million people subscribed to HBO Now as of July. Other estimates from BTIG peg the figure at between 850,000 and 1 million.

The network also heralded a landmark deal in August to get first-run rights for "Sesame Street" for the next five years. New episodes of the children's show will run and stream on HBO platforms for nine months, before heading to PBS.

Ireland believes that Stewart's content will be more "snackable" series that are easier to watch on smaller screens, rather than 30-minute or hour-long programs. It gives HBO original content, something that is necessary to compete with digital streaming services. Having Stewart's name behind the shows helps continue the network's image of as a premium service.

Michael Dub, partner at digital marketing firm DXagency, said by investing in short-form content it will also allow HBO to have materials that can be easily shared on social media, which can double up as promotional marketing. HBO is one of its clients.

"It's more about checking in on a more consistent basis and on all devices," said Dub. "That really is at the heart of where our society is going and where HBO is making a move towards."

Nail pointed out signing Stewart probably came at a premium price because of his notoriety, but talking head-style series are far less expensive to produce than scripted dramas like HBO's hit "Game of Thrones." The fantasy drama involves multiple actors and location shoots, upping the budget.

While Nail agreed that a digital presence is providing HBO with a way to derive new revenue streams, he said that he doesn't believe that it is moving its main business away from its cable roots. He believes HBO is investing in digital to grow its company to get younger subscribers, not save it from consumer change.

Home Box Office currently has about 122 million subscribers worldwide to the HBO and Cinemax cable services. It doesn't currently release numbers for its digital stand-alone product HBO Now. It declined to comment on its digital strategy.

"For all the talk of cord cutting, it's still a single digital percent of the population," Nail said. "Cable distribution is still a far-larger revenue driver, and will be the force for the next few years."

But times are changing, IDC's Ireland said. While many people believe millennials are the ones driving the cord-cutting trend, he thinks its more people than that. He said data show people up to their early 50s are embracing digital viewership means.

"Millennials are the highest-profile group that are looking for content on these other devices," Ireland said. "They are looking for content outside the traditional confines we had before, like the half-hour concept. But we see engagement with OTT apps across all demographics. What we would expect to see going forward is to see more consumers across all demographics engage with this content."

He said for a media company to exist in the future it needs to move away from aging populations and embrace the changing nature of media, which is exactly what HBO is doing.

"Otherwise you're going to be investing in 'network news' viewers, and you're just going to be serving an aging audience, which is what advertisers don't want," Ireland said.