Why HBO Now's Success Is Good for Netflix

By Markets Fool.com


Image source: HBO.

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HBO Now had only 800,000 subscribers when parent company Time Warner last updated us in February. Interestingly, one of those subscribers is Netflix CEO Reed Hastings. During Netflix's first-quarter earnings call, Hastings told analysts, "I think it's a great product, I use it all the time."

That's high praise from a company that's intently pitted itself against the premium cable network. "The goal is to become HBO faster than HBO can become us," Netflix content chief Ted Sarandos told GQ in 2013. Three years later they've each arrived at the other's doorstep, and instead of a brawl, Hastings just wants to hug it out.

This Internet thing is pretty great

HBO Now isn't much different from the HBO Go app traditional HBO subscribers have access to. Both apps give subscribers access to HBO's bevy of original series and films, as well as films licensed from other content owners. The only difference is that cable subscribers (HBO Go users) also get access to the linear television channels.

So cable subscribers might as well sign up for HBO through their cable provider. That usually comes with other perks such as including Cinemax (Time Warner's other premium network) or other networks as part of a larger bundle. Even if a customer just wants access to HBO, it's easier to manage one bill from his or her cable provider than one for cable and a separate bill for HBO.

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Ultimately, it's unclear if Hastings wants more people to subscribe to HBO Now, or if he'd be fine with more users simply using the HBO Go app included with their cable subscription. "They're continuing to do great work. And what that does is just reinforce to the consumers how great this new Internet thing is for TV," he said on Netflix's first-quarter earnings call.

The idea is, the more people use the Internet as a replacement for traditional TV, the better it is for Netflix overall. Netflix practically invented the category of streaming video on demand services, and it remains the de facto leader in the space. Increased HBO Now sign-ups is a good sign more people are cutting the cord, and thus more likely to subscribe to Netflix as well. In that sense, Hastings would like to see Hulu (which he's praised in the past as well) and other media services delivered over the Internet (know as over-the-top, or OTT, services) succeed as well.

Time Warner is stepping up its game with HBO Now

HBO isn't unhappy with HBO Now's subscriber numbers after the first year, but it expects things to pick up this year. "As we move into 2016 we expect the revenue contributions from HBO Now to increase further as we roll out new programming and expand distribution, allowing us to invest even more aggressively in marketing the product," CFO Howard Averill told analysts on the company's fourth-quarter earnings call.

The company is reportedly developing new programming specifically aimed at the online audience. It signed Jon Stewart to a contract for short-form news takes. It's also signed Bill Simmons, who has built his audience using podcasting and the Internet since departing from ESPN. The addition of Sesame Street helps it appeal to a broader audience that may have chosen other streaming services instead of HBO for access to kids' programming.

As HBO is able "to invest more aggressively" in HBO Now -- marketing it, developing new products, and improving the overall user experience -- more subscribers ought to follow suit. Hastings sees it as "set[ting] the drumbeat" for Internet-TV services of its ilk and the growing subscriber base they're attracting. As those services grow, so should Netflix.

The article Why HBO Now's Success Is Good for Netflix originally appeared on Fool.com.

Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Netflix and Time Warner. 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.