What Sesame Street’s Move to HBO Says About the Media Business

Sesame Street’s move last week to partner with HBO came as a surprise to some, but it makes a lot of sense given the broad trends in today’s media industry. The new world of media prizes both high quality content and high quality technology. In fact, to thrive you really need both. And for that reason, Sesame Street Workshop made a smart move to bolster distribution and fill gaps in its business model.

Public media has generally prioritized technology only to the extent necessary to distribute its content, which has been its primary emphasis. PBS, NPR, and others source funding from government, foundations, corporate sponsors, and audiences to develop independent, high-quality programming, free from overtly commercial treatment. But that’s not enough for today’s media market. The current environment requires serious investment not only in high quality content but also in innovative digital approaches to distribution.

The problem for Sesame Workshop and others like it is that there’s no single source of funding for both the programming and the technology. The foundations that support democracy, science, and learning—the kind that fund public broadcasting—are not necessarily as interested in funding technology platforms. And the organizations underwriting media technology innovation are mostly large media or digital companies and venture capital firms, which are generally hesitant to invest in content pure-plays.

Sesame Street’s move also forces us to acknowledge that consumer product development of all sorts in a digital world is highly complicated and requires intense investment. Focusing on a single digital platform isn’t tenable given the fragmentation of audiences across multiple technologies. Content owners seeking a full range of digital distribution options have to develop for Apple devices, Chromecast, Netflix, Amazon, Xbox, and others; each platform requires particular expertise and multiple development cycles, quality processes, and code bases to update. Sesame Street can now sidestep much of that by leveraging the investments that HBO has already made to figure out that landscape.

Sesame’s move also enables much-needed revenue diversification beyond its sponsors, the Corporation for Public Broadcasting, and its audience. And, as a high quality content creator, Sesame Workshop was in a unique position to leverage exclusivity and new windowing strategies to create new financial options. For premium content creators, a full business model now likely includes subscription (or bundled) consumer revenue streams and à la carte consumer purchases, in addition to advertising or sponsorship-supported models.

Sesame Workshop’s move follows an increasingly common path among public media and content creators to fund their programming in more innovative ways and leverage new sources of digital distribution. Downton Abbey cut a deal with Amazon Instant Video to be offered as part of Amazon Prime memberships. Public Radio Exchange or PRX (where I sit on the board), which distributes This American Life, among many things, is exploring options to fund a new ambitious technology platform for podcasts beyond its current technology. And now Sesame Workshop will gain a new source of partnership revenue while leveraging HBO’s technology infrastructure to distribute on linear television platforms as well as OTT streaming platforms like HBO NOW.

HBO has a heritage of merchandising the kid-friendly components of its programming as HBO Family. Its lineup has always included offerings for young audiences ranging from Harry Potter-type fare to Harold and the Purple Crayon. However, OTT content distribution and on-demand dynamics for the industry now offer volumes of content across screens without clear standards for age-appropriateness, so parents are likely to seek out safe or branded destinations where they don’t have to worry about what their kids will see. HBO’s partnership with Sesame Street offers new opportunities to create cordoned-off areas for children to safely consume content. And, HBO’s move may build influence with key decision-makers in the home — moms.

Sesame Street taught a generation of us about “Sunny Days,” how to spell, and how to count like a count. Now it’s teaching us a thing or two about the future of media. Its deal with HBO is a wakeup call that content and technology need their own strategies to enable consumer engagement and financial models at scale.