HBO is nominated for 99 Emmy Awards this year, and like every year nowadays, that’s more than any competitor. It's TV's proudest brand.
So, with the Emmys taking place Monday, it is just great timing that Re/Code’s Peter Kafka is reporting that, according to Barclay’s analyst Kannan Venkateshwar, HBO could add about $600 million to its bottom line if it sold online subscriptions. Right now, users have to have a cable authentication to get HBO Go online.
HBO has knocked down the idea in the past, but with Time Warner recently rebuffing a takeover bid from Rupert Murdoch, it may be a good time for Time Warner CEO Jeff Bewkes to give some more serious thought to HBO’s online future.
Apparently, he already is. Bewkes told Capital.com’s Alex Weprin in July, before Murdoch’s offer popped up, that except for having to deal with cable affiliates like Comcast and Cox and Time Warner Cable, the business models for Netflix and HBO are virtually “identical.”
"What we have to figure out in the long run is, how is this going to work?,” Bewkes said, according to Weprin's account. “That becomes an interesting question for companies like HBO, who could deliver their signal exactly the same way" as Netflix.
It would appear that Venkateshwar gave Bewkes a few options about working it out.
According to his hypothetical, HBO could offered its service online, but making the subscriber wait six months to a year for new seasons of big hits like “Game of Thrones.” That, he supposes, could sell for $11 a month, at a discount from HBO’s average $15 for cable subscribers.
And/Or HBO could sell it so that subscribers got current programs at the same time as cable users, for $18 a month, a slight bump up. This level, Kafka surmises, is for the online users who just are not going to subscribe to cable, no how, no way.
Venkateshwar calculates some cord-cutting from customers opting for the cheap service, but none from those opting for the more expensive version (where, I’d vouch, he’s messed up a bit).
But look at the results the Barclay’s analyst sees: From the $11 package, less HBO’s revenue loss from cable drops, the EBITDA would range from $246-$472 million, based on assuming HBO would pick up 4.4-6.6 million subs.
For the $18 package, the EBITDA range is $42-$126 million, based on 300,000-800,000 subs.
Add the two together, and HBO could top out with that $600 million.
There would be some tough waters to negotiate before anything like that could happen, but HBO and Time Warner know how to do that. And I have a feeling, HBO would end up paying cable companies—they’re also the major ISPs—a major chunk of change for trying it.
Still, how far away would Showtime be from following ? And what happens when consumers have it pointed out, emphatically, that by combining HBO, Netflix and TV Everywhere packages, that their cable package is not so necessary after all? Not a pretty picture--except there might be wild new cable inducements to stay where you are.
Keeping cable dominant may be the best reason for HBO not to do it: It also owns CNN and TBS and TNT and more.
Basically, then, it’s the same question all over again: Does HBO want to encourage a migration from cable?