With 'Sesame Street' deal, HBO takes aim at Netflix, Hulu

HBO’s deal for new "Sesame Street" episodes gives it access to the lucrative world of children's programming and comes on the heels of major moves in other areas, including sports and news. 

To those who associate HBO with the decidedly adult content of shows like “Game of Thrones” and “Entourage,” the news that the subscription cable network has struck a deal to host “Sesame Street” for its next five seasons comes with a bit of surprise, and a lot of questions. Will Bert and Ernie be headlining the next season of "True Detective?" Will Elmo make a cameo on "Girls?"

While it’s true that the Sesame Street deal is unexpected from a content standpoint (Is Jon Snow coming back, but in the form of…Grover?), it does make sense in the context of other major programming moves the network has made this year to expand beyond the prestigious scripted shows and TV movies that traditionally been its calling card. HBO’s rivals are no longer just other networks, like Showtime and AMC.  It’s also looking to compete with on-demand content platforms like Netflix, Hulu, and Amazon.

The “Sesame Street” deal makes HBO the exclusive home of new episodes of the show (old episodes will continue to run on PBS). Financial details have not been made public, but it looks to be a win for both sides. Sesame Street has been financially squeezed as DVD sales, which played a major role in funding the show, have declined; partnering with HBO takes away that financial pressure and gives Sesame Street Workshop the resources to put out 35 episodes per year, instead of 18, according to the announcement. It also means the show is no longer reliant on funding from longtime home PBS, which contributed about 10 percent of “Sesame Street’s" financing.

HBO, meanwhile, gains an on-ramp into the race to secure lucrative children’s programming. Children increasingly watch TV on-demand instead of on regular television – two-thirds of “Sesame Street” viewers, in fact, now watch the show on streaming services like Amazon and Netflix according to the New York Times.  (because of the HBO deal, “Sesame Street” will no longer be available on those sites). That makes kid-friendly content a top priority for HBO and its rival platforms. Hulu has a deal with Nickelodeon, a major part of its “Hulu Kids” section. Netflix bought up a bundle of popular kids’ shows from the ‘80s and ‘90s this year, including “Reading Rainbow” and “Bill Nye the Science Guy” and has a partnership with DreamWorks Animation to create original kids’ shows.

For HBO, then, children’s programming is a vital part of enticing viewers to subscribe to choose the standalone HBO Now, launched this fall, over the others. But it’s not only area where the network is teaming with established brands to diversify its offerings.

Last month, it landed a deal with Bill Simmons, the popular sports blogger and TV personality who became a highly sought-after commodity for media outlets after he was fired from ESPN in May. Mr. Simmons, who launched ESPN’s Grantland website and was instrumental in the hit “30 for 30” series of sports documentaries, brings with him a huge fan following and the hopes that he will help revive HBO’s sports content.

On the news front, the network is also expanding its partnership with Vice Media, which currently produces a documentary news show on the network, to include an interview show with Marc Maron and a program covering LGBT issues with actress Ellen Page. Partnerships like those, combined with HBO’s established stable of prestige dramas, comedies, and documentary projects, make it something the Netflixes and Hulus of the world should take seriously.