Earlier this week, Time Warner, Inc. (TWX) CEO Jeff Bewkes said that HBO is “seriously considering” offering its popular HBO GO service to those without cable (CMCSA) or satellite (DISH) subscriptions. This move reflects HBO's new attempt to become more competitive with Netflix (NFLX), currently the most popular online streaming service. By allowing users to subscribe solely to its streaming service, without a cable/dish contract, HBO has the potential to become one of the most profitable brands in television.
Not surprisingly, Netflix surpassed HBO last month in total subscription revenue, and continues to increase its customer base (largely due to Apple’s App Store). Currently, Netflix has roughly 50 million subscribers, and expects to add an additional 4 million during the upcoming quarter. Last year, Bewkes stated that HBO GO as a standalone service “[wouldn't] be attractive to many people." However, after witnessing an upsurge in Netflix's popularity, Bewkes quickly rebuked his statement about mobile streaming markets.
Incredibly, Netflix uses about 34.2% of bandwidth, within the United States, during prime time viewing hours. This amount dwarfs other popular websites like Google’s (GOOG) YouTube (13.2%) and Amazon’s (AMZN) Prime Instant Video (1.9%). By providing its streaming service to all current subscribers, as well as new customers, HBO could easily capture a large chunk of Netflix’s mobile market share. Furthermore, most Netflix customers will likely purchase HBO GO because Netflix cannot legally stream any HBO content. By allowing users to stream shows like Game of Thrones and True Blood, without a cable subscription, HBO will decrease piracy and increase bottom line growth.
Although HBO has more than double the amount of Netflix subscribers, it generates lower revenues because its proceeds are split amongst distributors. By directly offering HBO GO to its customers, the company can eliminate all middlemen and increase its profit margins.
There's no doubt television continues to evolve in America. In association with the advent of high tech consumer devices, increasingly fewer families rely on cable/satellite services, while more people utilize Internet streaming. Recently, 6.5% of U.S. households have canceled their television services in exchange for online streaming devices, like Roku, Chromecast, and Apple (AAPL) TV. This is up from 4.5% in 2010.
There's no argument, Netflix, Hulu, and other online streaming services are the future of television. Evermore television shows are now produced for online streaming services like Netflix and Amazon Prime. And, because of Americans' insatiable appetite for new content, "On-Demand" offerings will continue to prove the most popular form of television viewing.