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HBO

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When will HBO stop futzing around and start selling subscriptions to Web subscribers, just like Netflix?

Maybe, one day, says HBO and its parent company, Time Warner. But probably not anytime soon: The pay channel makes oodles of money the way things are now, when it is tied directly to pay TV providers like Comcast.*

But let’s say one day shows up. What would it look like if HBO did sell subscriptions on the Web?

Here are two interesting ways it could play out, courtesy of Barclays analyst Kannan Venkateshwar. Note that in both of these scenarios, Venkateshwar figures HBO will still make the bulk of its money via traditional pay TV subscriptions, and will try hard not to anger the cable guys too much. So these are having cake/eating cake proposals:

  • HBO “windows” all of its new programming for digital-only subscribers. That is, you could stream “Game of Thrones” or “True Detective” on your iPad, but you’d have to wait for six months or a year to get the new seasons. Venkateshwar figures HBO could sell these wait-a-while subscriptions for $11 a month, a discount from the $15 a month the average cable TV subscriber pays for HBO.
  • Sell the real-deal version of HBO over the Web, but charge a premium for it, like $18 a month. The theory here is that there are several million people with broadband who don’t pay for TV right now, and it seems unlikely they ever will. So why not turn some of them into paying customers?

Here’s what that might mean financially for HBO. Note that Venkateshwar assumes that up to 20 percent of HBO’s current subscribers may cut the cord and sign up for its theoretical lower-priced option. But he doesn’t consider that possibility when it comes to the more expensive version.

$11/month digital HBO:

$18/month digital HBO:

If HBO tried both of these options at the same time, it could generate up to $600 million in new earnings, Venkateshwar estimates. Given that HBO generated $1.7 billion in operating earnings last year, that’s real money, and Wall Street might give Time Warner $5 a share or more for that kind of upside.

A couple of months ago, all of this would have seemed like an entertaining exercise and not much more. But now, Time Warner CEO Jeff Bewkes has to convince Wall Street that he has a plan to make his company more valuable than the offer he wouldn’t take from Rupert Murdoch. So maybe the future will show up faster than we thought.

* Comcast owns NBCUniversal, which is an investor in Re/code’s parent company, Revere Digital.



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