HBO Now pays off for Time Warner as media company grabs stake in Hulu

Source: HBO(HBO, Apple)

After a quarter in which HBO played a big role in helping Time Warner beat earning forecasts, the media giant is pushing its networks further into the online environment, buying a 10 percent stake in Hulu for $583 million in cash and announcing that its “full suite of networks” will be available on Hulu’s live-streaming service in early 2017.

Time Warner will not be putting its content on Hulu’s current SVOD service, which streams TV shows the day after they air on broadcast television.

HBO played a big role in Time Warner’s forecast-beating earnings report during the second quarter, where along with WB, the premium SVOD provider helped push profits to $952 million, or $1.20 per share, above Wall Street forecasts of $1.16 per share. Its $7 billion in quarterly revenue was off 5.4 percent from the same period a year ago, but some analysts are bullish on the company regardless.

Jefferies maintained Time Warner at a “buy” rating with a price target of $85, citing HBO’s stronger-than-estimated subscription revenue growth of 6.1 percent along with a successful quarter at Turner, two networks that helped offset the company’s revenue decline somewhat.

How many new subscribers will Time Warner see from its participation in Hulu’s upcoming live streaming service? The analyst firm wasn’t sure. “While a positive, it’s still too early to have a call on the potential sub base given we won't know the full channel lineup until much later this year,” said Jefferies equity analyst John Janedis in a note to investors. Netflix estimated in its earnings call that HBO Now has as many as 800,000 subscribers.

A Recode article noted that Time Warner’s stake was much more conservative than what Hulu was hoping for. The SVOD service, which is owned by several media players including Comcast/NBCUniversal, Disney and others, is reportedly losing hundreds of millions of dollars per year, and was hoping that Time Warner would take a 25 percent stake. The 10 percent buy values Hulu at about $5.8 billion.

Adding Time Warner’s networks to its live streaming service will have decent synergies for Hulu as well. The added live content will put it into better contention against Sling TV, which has already integrated a slew of cable networks into its linear programming package.

For more:
- see the investor page
- see this WSJ article
- see this Recode article

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