At its Investors’ Day, Time Warner Inc. (TWX) announced the launch of an independent streaming service of its extremely popular channel HBO in 2015. Many analysts view this development as strong enough to alter the Pay-TV landscape.
Online HBO will target those 10 million consumers who have access to internet but do not subscribe to cable. The group consists mostly of ‘millennials’ who have moved to internet TV.
Time Warner currently has a streaming service HBO GO that requires users to have a cable subscription to access HBO content online. However, with the standalone service, users will no longer have to pay for hefty cable subscriptions to view HBO that comes mostly in packages with other less popular channels.
For some time now, streaming services like Netflix (NFLX), Hulu, Amazon.com Inc.’s (AMZN) Amazon Prime Instant Video and Google Inc’s (GOOGL) YouTube have made internet TV quite popular, resulting in large number of cord cutters. Rising cable bills have also contributed to the increasing numbers of cord cutters.
HBO is one of the premier channels on American TV that owns shows like the wildly popular Game of Thrones. It was only matter of time before HBO went online to directly market its content to the Gen-next viewers. It is most likely that the other popular channels will follow the suit in the coming days.
The move will definitely hit the cable companies hard. However, the severity of the impact depends on the kind of price tag HBO attaches to its streaming service. However, pay TV companies do not view this move as disruptive. As per them, HBO acts as more of maintenance means for subscription base rather than adding to the number.
Moreover, by launching a standalone service, HBO will have to direct a lot of resources for marketing and customer servicing, which the cable operators already provide to the channels. HBO has hinted that it might partner with an existing broad band service provider. Furthermore, with live sports dominating the top slots, it would be very difficult to see cable services fade into oblivion as a online streaming for these without a cable/satellite subscription is not in the offing in the near future.
After thwarting an $80 billion bid by Rupert Murdoch, CEO of Twenty-First Century Fox, Inc. (FOXA), Time Warner has taken restructuring aggressively. As per an internal memo, Time Warner, which is confident of performing better as a standalone company, will be focusing on original programming, reducing costs and increasing investments in key areas to enhance profitability.
Taking HBO online seems a good move. Yesterday, as per a Los Angeles Times report, Warner Bros, film studio of Time Warner, is likely to cut its workforce as it aims for a $200 million cost reduction. Earlier, the company announced that it will be trimming nearly a tenth of its workforce (1,475 employees) at the Turner Broadcasting Division and focus more on original programming and content monetization. Turner, which houses cable channels like CNN, TNT and TBS, saw its revenues falter on account of falling ratings, unfavorable advertising trends and stiff competition.
It is now extremely important for Time Warner, especially after thwarting Murdoch’s eye-popping deal, to successfully execute its strategies to retain investor confidence in the stock.
At present, Time Warner is a Zacks Rank #3 (Hold) stock.
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