Time Warner Inc (TWX), Time Warner Cable Inc (TWC): Why HBO Won’t GO Solo Anytime Soon

HBO, owned by Time Warner Inc (NYSE:TWX), is reportedly mulling over making some changes to its HBO GO online streaming service. Currently, the only people with access to the service are those that subscribe to the traditional cable service as well (unless you mooch a password off your friend). CEO Richard Plepler told Reuters HBO GO could be packaged with monthly internet service in the future. But Game of Thrones fans shouldn’t rejoice yet. We’re likely years away from seeing any sort of deal resembling this proposal.

Time Warner Inc (TWX)

Why this plan doesn’t work

This isn’t the first timewe’ve heard rumors of HBO going solo. As more people cut the cord and opt for pure internet video streaming services, HBO recognizes that being tied to cable bundles is a systemic issue for its business.

The rise of the “cord-cutters” and the “cord-nevers” has been very disruptive to traditional pay TV outlets. Since 2007, Time Warner Inc (NYSE:TWX) and Time Warner Cable Inc (NYSE:TWC) has seen cable TV subscribers decrease from 13.3 million to 12.2 million in 2012. Comcast Corporation (NASDAQ:CMCSA) has had similar woes as video subscriptions fell from 24.2 million in 2008 to 22 million in 2012.

Comcast Corporation (NASDAQ:CMCSA) has taken the initiative to combat the cord-cutting trend. It boosted its internet service speeds, which justified a price increase; It also increased its video subscription price, and offers a better price on its “triple-play” package to encourage more service signups.

As a result, 75% of video subscribers took at least two products, and 40% took all three – video, internet, and voice. These efforts resulted in improved revenue per video customer by 9% last quarter, and a 2.9% year-over-year growth rate in video revenue.

HBO, and its exclusivity to cable subscribers, is a huge asset to cable companies such as Time Warner Cable Inc (NYSE:TWC) and Comcast. Imagine what their response would be if HBO came to those companies and asked them to start bundling its service with the internet service they provide. HBO would get laughed at for even proposing the idea.

There’s no incentive for Comcast or Time Warner Cable Inc (NYSE:TWC) to accept such an agreement. Internet service customer numbers continue to rise as video subscriber numbers fall. Taking away exclusive access to HBO would only hurt those companies’ video subscriber numbers. They would need a huge increase in HBO subscribers to cancel out the losses from dropped video subscriptions.

Why not go it alone?

The real problem for HBO, however, is that it needs cable just as much as cable needs it. Cable companies provide huge subsidies to HBO’s operations. They pay for marketing and promotions, take care of the billing process, and handle customer service.