HBO Just Got One Step Closer to Becoming Netflix

By Markets Fool.com

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Image source: Apple.

"The goal is to become HBO faster than HBO can become us."

-- Reed Hastings, January 2013

Last October, Time Warner's HBO announced to the world that it would soon launch a stand-alone streaming service that didn't have to be bundled with a traditional cable package. Consumers had been clamoring for this mythical service for years, and HBO realized that if it didn't meet those demands, Netflix would continue gaining traction in its quest to "become HBO."

Well, HBO has just made good on its promise. At Apple's "Spring Forward" event, HBO detailed its new HBO NOW service.

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But at what cost?
HBO Now will cost $15 per month, which is comparable to what it costs when bundled with existing cable packages. Compare that to Netflix's standard subscription, which costs just $9, and it's obvious that HBO is trying to take the high ground here.

While that does translate into a premium of 67%, HBO is hoping that its brand strength will translate into pricing power. After all, the premium channel has The Sopranos, True Detective, and Sex and the City under its umbrella. Oh, and there is a little show called Game of Thrones that you may have heard of by now. Maybe.

At the same time, Netflix is making strides with its own original programming. The company earned over a dozen Emmy nominations in 2013, with House of Cards winning three awards that year.

As the cord-cutting trend continues, HBO Now is coming at the right time.

Where does Amazon come in?
Speaking of original content, e-commerce giant Amazon.com has also been making strides with original programming. Much like Netflix, Amazon earned some legitimacy with Transparent, taking home a Golden Globe earlier this year.

Since Amazon includes its Instant Video service as part of Prime, it's a little harder to tell how the business is faring since it's part of a $99 per year subscription that includes a handful of other features. Besides, Amazon won't tell you much about its Prime subscriber base anyway.

One and the same?
Internationally, HBO remains ahead by a healthy margin. HBO's global subscriber base of 138 million makes short work of Netflix's 57.4 million.

Source: SEC filings. Figures as of the end of 2014.

However, on the domestic front, Netflix is catching up -- fast.

Source: SEC filings. Figures as of the end of 2014.

By launching a stand-alone service, HBO can finally appeal to a growing portion of the market. Demographically, millennials are much more likely to be either cord-cutters or cord-nevers. While the demise of "traditional" TV has indeed been greatly exaggerated, this is still a trend that cable operators and content providers simply cannot ignore. People are embracing new distribution methods more than ever before, and HBO has no choice other than to adapt.

In doing so, HBO can potentially reinvigorate its own subscriber growth at a time when Netflix is clearly catching up. It's also worth pointing out that Netflix and HBO aren't necessarily mutually exclusive. That's even more true when you isolate their streaming services. Combined, Netflix and HBO Now would cost $24 per month, which is still well below what most traditional cable packages cost before add-ons.

Maybe Netflix and HBO can both be the same thing after all.

The article HBO Just Got One Step Closer to Becoming Netflix originally appeared on Fool.com.

Evan Niu, CFA owns shares of Apple and Netflix. The Motley Fool recommends Amazon.com, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.