HBO Standalone Streaming will Drive Growth for Time Warner in 2015
How many people have cut-the-cord, cable cord that is, over the years because they either couldn't afford or couldn't justify the monthly expense associated with 200 plus cable channels in order to access HBO? Honestly, I have no idea, but I see a drastic shift in Premium Cable viewing because HBO is going to offer a streaming service that doesn't require you to sign up for cable with any of the traditional cable brands such as Comcast, Time Warner Cable or DirecTV. Think of it; instead of paying that cable and internet bill of more than $100 per month, you would simply use your internet TV to subscribe directly to HBO. This move by HBO is so drastic, that Cable companies are already taking the appropriate steps to change the billing plans/packages with the hope that HBO's new streaming service doesn't create too much churn. Personally, I don't think the cable companies are going to have high retention of customers who are sick of paying for bundled channels going forward, but shorting the cable companies is another trade that we will talk about later.
Many reports have said that the launch of HBO Streaming will be in conjunction with the release of this season's Game of Thrones. "The previous season [season four] of Game of Thrones, which concluded in June , averaged a gross audience of 19.0 million viewers making it the most watched season of an original series in HBO's history." Since HBO is leveraging a show with that level of viewership, there is a high probability of new customer acquisition in order for those without the traditional HBO subscription to watch the new season of Game of Thrones.
Although HBO hasn't said how much HBO Streaming is going to cost, analysts are estimating a fee of approximately $15/month. At that price point, HBO will definitely capture additional revenue from every subscriber that it takes from the cable companies, as well capture additional revenue from every new subscriber. This is the formula that will drive growth for Time Warner (ticker: TWX) in 2015.
As of December 31, 2013, HBO had approximately 43 million domestic premium pay subscribers, so there is a huge opportunity to save subscribers money on their cable bill, without even growing the customer base. At the same time, if 60% of all households have broadband internet service within the USA, there are more than 70 million homes that already have the ability to add the HBO Streaming service by simply paying the monthly fee. I don't want to speculate on the conversion from Cable to Streaming only, or the rate of adoption when it comes to adding new subscribers, but I will watch this closely to see what type of growth is generated for TWX from this opportunity.
2015 Full-Year earnings guidance for TWX should be announced on February 11, 2015, and I will offer more insight on the investment opportunity at that time.
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