It’s only a matter of time before Netflix tramples HBO globally

It’s only a matter of time before Netflix tramples HBO globally

By John McDuling @jmcduling February 7, 2014

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We’ve long argued that Time Warner Inc doth protest too much in its attempts to distance HBO from comparisons to Netflix. But separating the premium channel’s earnings results from its other businesses, which the company did for the first time this week, seems to actively encourage it.

It makes sense: Time Warner’s share price can only benefit from greater transparency around the HBO juggernaut: the network behind the hit shows Girls,True Detective and Game of Thrones is a much more profitable business than the still extremely highly-valued Netflix.

The most striking difference between HBO and Netflix is their international reach. As the above charts show, Netflix is still mostly focused on the Americas–though it’s planning a big expansion in Europe this year, and is expected to enter big markets like France and Germany.

Netflix only has 9.7 million (official) paying customers outside the US, compared to HBO’s 84 million; HBO owns or partly owns networks in more than 70 countries. HBO also licenses its content to existing networks in seven other countries (such as Australia and the UK), which typically market themselves as the “Home of HBO,” and makes its shows available on demand in five other countries (including Japan).

Time Warner’s international networks, of which HBO is easily the biggest, made $3 billion in revenue and over $750 million in operating profits last year. By contrast, Netflix’s embryonic international business still operates at a loss.

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This leaves plenty of room for Netflix to replicate what it has done inside the US in foreign markets. HBO and Cinemax added 2 million US customers in 2013, their best performance in 17 years, but still less than Netflix added in the fourth quarter alone. If HBO and Netflix are complimentary services in the US, as both Time Warner CEO Jeff Bewkes and Neflix have argued (HBO viewing is higher in Netflix households) chances are the same logic applies abroad.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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