Time Warner Inc (TWX): Should HBO GO Standalone?

Big-tradeoff; Major roadblocks to going solo

Time Warner Inc (NYSE:TWX) faces a big trade-off when it comes to offering HBO Go as a standalone service. While it’s pretty evident that the company is leaving meaningful amounts of “money on the table”, it faces a few major risks in adopting such a stance. The company will be making its large distribution partners like Time Warner Cable, DIRECTV (NASDAQ:DTV), Comcast Corporation (NASDAQ:CMCSA) etc. very unhappy. Time Warner gets it revenue from these distribution partners, and not directly from the end-consumer.

Dealing with millions of customers represents a hassle and a pricey proposition for Time Warner Inc (NYSE:TWX). In its current business model, the distributors of Time Warner handle the customers for the company. And most importantly, these companies provide substantial marketing and promotional support for Time Warner, with some of the partners like DIRECTV offering HBO free for 3 months or more. All these partners are crucial for Time Warner because the company sells its basic and less lucrative channels to these distributors as well, along with its lucrative properties like HBO and Cinemax.

Too much at stake; Alternative solutions

Numerous consumer groups have suggested that HBO should go standalone, and rightly so. The company is losing a lot of subscription revenue from potential customers and pirates, but still HBO Go is unlikely to be a standalone offering.

The company has too much at stake by betting big on one project, and risk alienating its distribution partners. The buyers of company’s services have a lot of power in their hands. HBO’s executives have recently suggested that they are considering a tie-up offering with its internet providers to offer HBO Go to chord-cutters and to users without cable. The main goal is to rope in customers who use the Internet, and also bring down the monthly costs of having HBO. While going solo is unlikely to materialize in the near future for HBO, at least not in the U.S., the price of getting HBO Go will likely get a hair-cut.

Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix.