The top content executive of Netflix once mentioned that the company aimed at becoming HBO “faster than HBO can become Netflix,” which leaves the two enterprises fighting for the highest revenues and most subscribers. After Netflix CEO Reed Hastings disclosed and bragged about the company’s high revenues, joking that HBO’s president uses “netflixb*****” as a password, Time Warner decided to continue the feud and make HBO’s numbers public to show the online movie and television streaming outfit that it still reigns over revenues. This is also the first time parent Time Warner reports numbers for HBO separately.
The battle between Netflix and HBO started when Netflix implied that its new target is to surpass HBO, an aim which has been reportedly achieved after reports showed that U.S. subscribers do not prefer Time Warner’s premium cable network anymore. According to reports, HBO had approximately 29 million U.S. subscribers, while Netflix took the helm with its 33.4 million. Irrespective of the results, Netflix’s victory is short-lived, because HBO remains a bigger business globally thanks to its 114 million subscribers, thus surpassing Netflix’s 44 million members.
Netflix and HBO’s “contest” is not only about who gets the most subscribers, but also who has the highest revenues, an area in which Time Warner’s premium cable network shines over its opponent. HBO’s operating income for 2013 was estimated at $1.8 billion, while Netflix only made $228 million. One of the reasons why HBO is still outperforming Netflix could be the latter’s massive costs of licensing deals with Hollywood studios.
It appears that Hollywood prefers HBO because it is a form of advertisement. When HBO offers its subscribers a recent movie, viewers have two choices after the film ends: either wait for HBO to show it again or purchase it. However, since Netflix offers its subscribers the opportunity to have constant access to every movie in its catalogue, the need to purchase a copy is no longer a valid possibility at least until the license expires. Therefore, while HBO’s costs for outside content went down, Netflix must pay more if it wants to have movie licenses.
Original Programming, the Ultimate Battlefield
The battle between Netflix and HBO for the highest revenues and most subscribers has reportedly just started and the ultimate battlefield is the original programming. While HBO has been offering its subscribers original series like The Sopranos and today’s Game of Thrones, Boardwalk Empire and Girls, Netflix puts its bet on House of Cards and Orange Is the New Black.
However, analysts mention that Netflix needs a much bigger investment in original programming if it wishes to have enough royalty to soar prices significantly. MoffettNathanson’s Michael Nathanson stated that HBO probably has a budget of more than $1 billion per year for original material.
“HBO remains in a league of its own,” Time Warner CEO Jeff Bewkes said.
Although in the fourth quarter of 2013, Netflix’s revenue boosted 24 percent to $1.2 billion. However, some voices utter that HBO is still more profitable and urge Netflix investors to understand that the company they support is not as stable as Time Warner’s premium cable network.
Netflix and HBO are now battling for the highest revenues and most subscribers after Netflix CEO made comments about HBO’s president and the premium cable network published its numbers without adding Time Warner’s Cinemax to the final report.
By Gabriela Motroc