Tags: HBO | web | cable | TV

HBO to Offer Stand-Alone Web Subscription in US Next Year

Wednesday, 15 October 2014 02:30 PM

Time Warner Inc.’s HBO plans to offer a long-awaited online-only service in the U.S. next year, letting viewers without a cable or satellite-TV subscription tune into “Game of Thrones” and “Boardwalk Empire.”

Richard Plepler, chief executive officer of the HBO division, didn’t say how much HBO’s new service will cost. While the number of U.S. households that pay for broadband but not TV has climbed to 10 million and is still growing, half of those homes do pay for a streaming service online, he said.

“These consumers have no access to HBO,” Plepler said at Time Warner’s investor meeting in New York today. “That is a large and growing opportunity that should no longer be left untapped. In 2015, we will launch a stand-alone over-the-top HBO service in the United States.”

Plepler said the the Internet-based subscription will expand beyond the U.S. in the coming years. The Web-based offering could generate hundreds of millions of dollars for HBO, he said.

The move pits the premium channel, whose shows routinely draw Emmy nominations and water-cooler buzz, directly against Netflix Inc., which has begun to draw viewers with original programs like “Orange Is the New Black.” Netflix, which is scheduled to report quarterly earnings today, dropped to its lowest share price in two months in intraday trading.

HBO and its growth prospects are a big part of why New York-based Time Warner rejected a $75 billion buyout offer from Murdoch’s 21st Century Fox Inc., saying it will be better off independent.

Beating Estimates

Time Warner shares rose 1.9 percent to $71.97 at 12:08 p.m. New York time. The stock earlier rose as much as 4.3 percent for the biggest intraday gain since July 17. Murdoch’s bid, which he withdrew in August, had valued the company at $85 a share. Netflix fell to $430.18, the lowest intraday price since Aug. 6, before recovering to $437.16, still down 2.7 percent for the day.

The HBO plans are part of Time Warner CEO Jeff Bewkes’ broader efforts to make money on new methods of delivering video. That push is part of the reason that Bewkes today forecast earnings growth for his slimmed-down media company that beat analysts’ estimates, adding to his sales pitch to investors on the value of Time Warner as an independent company.

HBO GO is “both enhancing the value of the ecosystem and it’s opening up growth opportunities for HBO outside the traditional ecosystem,” Bewkes said.

New Wave

It’s all part of Bewkes’ efforts to prove that he can find the next wave of growth for Time Warner after his strategy since taking over in 2008 has largely consisted of spinning off assets: Time Warner Cable Inc., AOL Inc. and most recently the Time Inc. publishing division.

Today, Bewkes said adjusted earnings will be close to $6 a share in 2016 and more than $8 a share in 2018. Analysts expected profit of $5.40 in 2016 and $7.02 in 2018, according to the average of estimates compiled by Bloomberg.

Time Warner could produce more than $600 million a year in additional earnings by getting more money from cable subscribers and offering a high-end, broadband-only product, along with a lower-tier offering with programs from its library, Barclays Plc said in a note yesterday. Along with Time Warner’s Warner Bros. film studio, HBO is “among the best media assets across the industry,” Kannan Venkateshwar, a Barclays analyst, said in the report.

Limited Pool

HBO is typically marketed as part of a pay-TV package that costs $100 a month or more, limiting the potential pool of customers. While HBO is on track for its best U.S. growth in 18 years, about 80 million U.S. pay-TV homes don’t subscribe, Plepler said. HBO Go, the online and mobile version, is currently available in the U.S. only to cable-TV customers who pay for HBO.

“It is time to remove all barriers to those who want HBO,” he said.

Netflix, based in Los Gatos, California, boosted its U.S. subscribers to more than 36 million in the second quarter. The streaming-video provider and Amazon Inc., which also licenses Time Warner programming, pose a threat because they draw viewers away from traditional cable channels owned by Bewkes’s company, including TNT and TBS.

“We are curious how management perceives the dangers of helping an increasing number of consumers to binge view ever- better content ad-free on Netflix versus tuning into live TV tonight,” Richard Greenfield, an analyst at BTIG LLC, said in a research note yesterday.

Time Warner has already experimented with an online-only version of HBO outside the U.S., and found that it increased cable-TV subscriptions, rather than cannibalizing the main product. HBO is available in more than 60 countries.

Nordic Trial

A stand-alone HBO service in Sweden, Norway, Finland and Denmark, which can be bought separately from cable-TV or Internet service, had generated 380,000 subscriptions as of July, people familiar with the matter said at the time. Subscriptions to HBO through traditional pay TV providers in those countries have also increased, they said.

The new plan doesn’t mean HBO is completely abandoning its lucrative business model via traditional cable and satellite-TV distributors like Comcast Corp. and DirecTV.

“We will work with our current partners,” he said. “And, we will explore models with new partners.”

Plepler said HBO also plans to demand a bigger cut of sales from pay-TV companies for subscribers who aren’t generating money for HBO, as well as increasing its number of traditional TV subscribers in the U.S.

Cable and satellite stocks slid today. Comcast dropped 2.1 percent to $50.39, and DirecTV fell 2.2 percent to $82.96.

© Copyright 2019 Bloomberg News. All rights reserved.

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Time Warner Inc.'s HBO plans to offer a long-awaited online-only service in the U.S. next year, letting viewers without a cable or satellite-TV subscription tune into "Game of Thrones" and "Boardwalk Empire."
HBO, web, cable, TV
Wednesday, 15 October 2014 02:30 PM
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