Investment analyst: Murdoch would take HBO out of pay TV bundle, target Netflix

Rupert Murdoch and 21st Century Fox haven't even come back with a follow-up offer to their rejected $80 billion bid for Time Warner Inc. But there's plenty of speculation already as to what Murdoch will do if he acquires his prize.

According to Mediatech Capital Partners managing director Porter Bibb, among all of Time Warner's assets, HBO is the one Murdoch covets the most. And if he gets his hands on it, he'll take it out of the pay TV bundle and have it compete directly with Netflix (NASDAQ: NFLX).

"It's amazing to me why [Time Warner CEO] Jeff Bewkes is not using the tremendous archive of fantastic content that HBO has [to go] head-to-head against Netflix," Bibb told the Bloomberg Surveillance radio program, adding that he does not believe Murdoch would make that same mistake." (Hat tip to SNL Kagan's Sarah Barry James for the original pick-up.)

Other analysts have speculated that it's the Turner Networks sports rights--the NBA and NCAA March Madness, specifically--that Murdoch really covets. But Bibb called HBO "the Holy Grail that Rupert had his eye on," adding "it's the Netflix killer no one has come up with." Fox, which has had an output deal with HBO for decades, values the premium network at around $20 billion all on its own, Bloomberg notes.

If Fox is looking to acquire its own premium cable network, there are other far less expensive platforms out there, such as Epix.  But none have the content and reach of HBO, which touts global programming hits such as Game of Thrones and Girls and ended last year with 127 million subscribers globally. Netflix ended 2013 with just over 44 million customers and just announced that it passed 50 million during its second-quarter earnings report.

"I think Rupert Murdoch and more specifically [co-COO of 21st Century Fox] James Murdoch, who really understands the digital space, if they get their hands on HBO, they're going right after Netflix and they will be a very, very formidable competitor because they have much better content, they have many more subscribers around the world and they know how to produce original content a lot better than Netflix does," Bibb said.

For his part, Bewkes has addressed the take-HBO-OTT question before and rebuked the idea, explaining that there's just not enough homes in the U.S. that have broadband and not a video subscription to make the opportunity worthwhile.

"I think Fox would use it more as a way to deflect Netflix in international markets," SNL Kagan analyst Deana Myers said. "I can't see them changing U.S. distribution in the near term since both companies have been focused on an authentication strategy with their networks."

As Bibb conceded, international HBO extensions like HBO Nordic are already over-the-top and do compete head-on with SVOD services.

HBO Nordic is a "serious threat" to Netflix in that region, he noted.  

For more:
- listen to this Bloomberg Surveillance interview
- read this SNL Kagan post

Related links:
Fox-Time Warner deal could give Murdoch what he really wants: to compete with ESPN
Murdoch bidding on Time Warner Inc. could reach $91B, analyst says
Time Warner Inc. rejects $80B takeover bid by Murdoch, Fox

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