I find it really interesting what was announced today by HBO. Essentially from some indeterminate point next, HBO will sell a service direct via the web.

Now in a world where we have Netflix and iTunes, this might not seem like a big move, but the pay TV market – and the American one in particular – is an interesting beast. HBO is a premium cable channel. That is, you buy it via a cable or satellite operator. But those operators will only it sell it to you in addition to a basic cable package. In other words, even if you only want to watch HBO, you have to take a big package of channels to be able to subscribe.

The US isn’t alone in this. It’s the same way that Sky and Virgin Media retail their channels. You take some kind of basic package, and then you can add, say, Sky Sports on top of that. The difference is that “basic” cable packages in the US tend to be bigger. And the US equivalent of Sky Sports, ESPN, tends to be included in that basic package. ESPN, incidentally, gets a decent chunk of your cable bill – probably somewhere around $6 a month. They use that pay for their sports rights. But before you say, “Wow – $6 a month is pretty cheap,” you need to think about the economics. It’s only that “cheap” because every customer is effectively forced to pay for it. If you’re not interested in sport at all, you’re still paying $6 a month for sport. If it was an add-on, then fewer than the 100m+ households that take cable (or satellite) would pay it. The costs would remain the same, so the price would go up. That’s why in the UK we have to pay £24+ a month for our Sky Sports package.

There’s a lot of talk in the US about “cord cutters” – those who don’t want to have to buy a full $80 a month cable TV package. They still want to watch Game of Thrones at the same time as everyone else though. So it’s a question of how they get it.

Many channels of course provide what the industry terms Over the Top (OTT) services. But these services tend to be within the walled gardens of the cable TV operators. It’s obviously not in cable TV comapnies’ interests to let that programming just swim around free. Indeed, they don’t really like letting customers pay for it on their own. If we can all start just buying the shows we want, then why should we have to pay for dozens of channels we don’t want? That ecosystem does support a broad range of channels. But it’s arguably propping them up too. You’re paying perhaps only a few cents a month for a channel, but that makes it profitable.

So OTT services like HBO’s HBOGo work hand in glove with your cable supplier. You have to enter your subscriber details to get access to the service. Typical you’ll be limited to a small number of devices to prevent you giving out your details to all and sundry. Although that doesn’t stop lots of kids who moved away from home using their parents’ cable bills to get their HBO. The so-called “millennials” are particularly likely to do this.

Ironically there’s also the problem that it’s those same cable TV companies that are about the only place you can get internet connectivity in the US. It makes them effective monopoly suppliers, and even triple-play phone/broadband/TV packages are still vastly more expensive than in territories where true competition exists, such as the UK.

But time marches on, and cables are being cut, although probably not to the extent that is sometimes portrayed.

And viewers still want to watch Game of Thrones regardless of whether they have cable or not. A campaign called “Take My Money HBO” was even launched.

Well it sounds like they’re now going to do it. And this is where it gets interesting. HBO is an enormously profitable part of Time Warner. Once upon a time, Time Warner also owned a big cable operation, but Time Warner Cable was spun off in 2009. Today Time Warner’s big divisions are Turner (including basic cable TV channels such as TNT, TBS, and the CNN stable), Warner studios (the movie and TV production divisions), and HBO.

HBO itself is enormously successful. In the 2013 Annual Report, it saw revenues of nearly $5bn – a combination of subscription fees and content sales (sales of programmes to non-HBO owned channels, and home video revenues). That generates about $1.8bn of Operating Income. But the Turner division generates nearly $10bn revenues and an Operating Income of $3.5bn. So in other words, there’s a sizeable chunk of business still being done in the cable TV market.

That’s important because of the potential ramifications that annoying cable operators could have. Could we see consumers cutting the cord and just buying HBO?

I suspect that while some will, it won’t be all that many.

There’s a lot of good TV these days, but it’s spread thinly over many channels. I got very excited about the forthcoming new series of Twin Peaks the other day. But that will be on HBO’s premium cable rival, Showtime (owned by CBS). Customers who cut the cord and want to watch Homeland or Twin Peaks will need to subscribe to a similar service from Showtime – assuming they make one available.

Then there’s the cost.

Looking at what HBO tells us about their revenues, based on the 2013 Annual Report, it turns over $4.231bn in subscription revenues. Now the report doesn’t break that out by territory, and there are other versions of HBO around the world. But it does note that HBO Nordic and HBO Asia combined have subscription revenues of around $48m. I’ve plucked $50m additional revenues from other territories out of the air. But to be honest, even if I’m $30m out, it doesn’t make much odds to the maths.

We’re left with $4.133bn for US subscription revenues.

According to this Variety piece, SNL Kagan (a company who model these things closely) say that HBO has 29.2m customers.

So if you divide $4.133bn by 29.2m and then by 12 months, you get a cable bill for HBO of $11.80. And that sounds right. This piece from last year has a range of prices for HBO broadly between $15 and $20 a month. But there are lots of offers, bundles and other things. Plus there’s almost certainly a cable company mark-up. So $11.80 feels right.

Interestingly, an Atlantic piece from 2012 suggested it was $7. I suspect, even allowing for a couple of years of Game of Thrones, that this was low.

What this all says to me is that consumers can be looking at something more like $20 a month when the new service launches.

This will appease cable operators who can say, “Hey, HBO is cheaper with us.” And yes, it’s at a premium compared to what Netflix charges, or Amazon Prime’s implied cost (Amazon did a big $100m+ deal for older HBO programming recently), but it’s not out of the ballpark. There are 70m cable households not currently paying for HBO. And even if some of them only subscribe for limited periods – the ten weeks of Game of Thrones – then it could make sense for all concerned. Yet another reason why those Game of Thrones DVDs take such a long time to get released.

I’m not sure that there are many other companies who could do this. HBO revenues aren’t related to advertising, and cable companies can’t get too annoyed and pull HBO. If they did, then they’d simply lose customers. It’s certainly an interesting move!

This whole piece is probably a bit academic for a UK audience. But it’s interesting that Sky is effectively already doing this same thing with Now TV. £9.99 for a day’s sport is a rip-off compared to £24 a month. But £10.99 for the Ryder Cup weekend might be something of a bargain.