Time Warner looks to get bigger HBO revenue cut from pay-TV operators

Under pressure to from investors to wring more revenue out of its crown jewel, Time Warner Inc. will use its upcoming affiliate licensing renewals for HBO to get a bigger cut of the premium channel's revenue from pay-TV operators.

As the New York Post reported Wednesday, pay-TV operators have aggressively used the enticement of promotional HBO subscriptions to stem video subscriber losses. In fact, of HBO's 43.4 million U.S. subscribers, 10-15 percent of them are "non-revenue-generating," as written on Time Warner's books.

While not producing revenue, however, the addition of these non-paying HBO customers has allowed MVPDs to bolster their bottom lines--the more subscribers to the premium network they add, the bigger their cut of overall HBO revenue. And of course, the "free HBO for three months" carrot is also keeping subscribers in the fold.

With 21st Century Fox trying to buy the company, and Time Warner investors looking to prop up each of the company's divisions, CEO Jeff Bewkes is reportedly set to push back.

"The upside [the pay-TV partners are] enjoying now, HBO will look to share in re-negotiations," the Post quoted someone "familiar with HBO's thinking."

On Time Warner's first quarter earnings call in April, CFO Howard Averill noted: "Our domestic subscriber trends remain positive, and similar to the past few quarters, the majority of recent subscriber additions have been non-revenue-generating. So, while that's a good barometer of consumer demand for HBO, subscriber growth did not have a material impact on our revenue."

Investors, however, want to know why Time Warner's most valuable asset, valued at around $20 billion, has a flat paying subscriber base and only grew its revenue 4 percent last year.

"I believe there's pent-up economic value to exploit," said Guggenheim Partners analyst Michael Morris to the Post

For more:
- read this New York Post story

Related links:
Investment analyst: Murdoch would take HBO out of pay TV bundle, target Netflix
Report: Time Warner looking to deploy HBO in more Internet-only packages
Time Warner Inc. rejects $80B takeover bid by Murdoch, Fox

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