Netflix surpasses HBO in Q2 sub revenue, closes fast on profit, analyst says

HBO has commanded the spotlight in recent weeks, amid the rapt media coverage of Rupert Murdoch's ultimately abandoned attempt to buy Time Warner, Inc.

Facebook Reed Hastings

Hastings took to Facebook to announce Netflix's subscriber milestone.

After Time Warner's second-quarter earnings call earlier this week, Netflix chief executive Reed Hastings used his Facebook account to take some of the attention away from the premium cable service Netflix (NASDAQ: NFLX) views as its most important rival.

Hastings' post, which received a "like" from Facebook impresario Mark Zuckerberg: "Minor milestone: last quarter we passed HBO is [sic] subscriber revenue ($1.146B vs $1.141B). They still kick our ass in profits and Emmy's, but we are making progress. HBO rocks, and we are honored to be in the same league. (yes, I loved Silicon Valley and yes it hit a little close to home.)"

So is Netflix, with just over 50 million streaming subscribers worldwide, really about to surpass HBO (127 million customers globally) as the world's No. 1 subscription programming service?

Well, as Hastings concedes, HBO still enjoys much bigger profits. Time Warner said the service posted an operating profit of $548 million in Q2 vs. $459 million in the second quarter of 2013. Netflix, on the other hand, reported $212 million vs. a year-over-year comparable of $85 million.

But as BTIG Research analyst Richard Greenfield noted in a Thursday afternoon blog post, "all subscribers are not created equal." Netflix is still enduring the burden of building out its international subscriber base. But since it charges a relatively flat rate for its service worldwide, while HBO charges much less in certain territories than it does in the U.S., Netflix's international customer base should produce markedly superior ARPU over time.

For more:
- read this Re/code story
- read this BTIG Research report (sub. req.)
- read this Television Business International report

Related links:
Investment analyst: Murdoch would take HBO out of pay-TV bundle, target Netflix
Hastings: Don't worry, ISPs, Netflix won't charge you for the 'privilege' of carrying its data
Netflix revenue climbs to $1.34B, company reaches 50M subscriber mark globally

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