Earlier this month, Netflix, Inc. (NASDAQ:NFLX) Chief Executive Officer Reed Hastings announced in a post on Facebook that the video streaming service had surpassed HBO in terms of subscriber revenue. In today’s edition of Bloomberg Surveillance, Scarlet Fu discussed the HBO vs Netflix race for revenue on Bloomberg’s ‘Single Best Chart.’
“ It [HBO] has actually fallen behind Netflix, Inc. (NASDAQ:NFLX) as of the second quarter this year in terms of the subscription revenue, $1.14 billion for HBO vs $1.15 billion for Netflix,” noted Fu.
This trend is mostly due to the huge increase in the number of people subscribing to Netflix in the last two years, while the number of HBO subscribers remained almost constant both in the United States and abroad. Though the subscription revenue numbers look promising for Netflix, HBO is still the leader in terms of profitability. While HBO earned $548 million for Time Warner Inc (NYSE:TWX) during the last quarter, Netflix is still taking baby steps with its $71 million for the same period.
If Netflix, Inc. (NASDAQ:NFLX) is planning to take on HBO, it must consider a few other variables. HBO is primarily a TV channel with an on-demand service whereas Netflix has only an on-demand streaming service currently. If Netflix wants to enter the living room of its subscribers, it has to go via cable companies to get a transmission path which HBO has already achieved. Also, the original content business of Netflix, while not bad in itself, cannot hold a candle to HBO’s well established and good quality original shows.
Netflix, Inc. (NASDAQ:NFLX)’s increasing subscribers may be the least of HBO’s concerns, as its major challenge in the near future is to lure the younger generation into watching television over cable. This growing audience base is not particularly keen on subscribing to costly cable packages.
“That is one of its [HBO’s] challenges, to get the younger millennia’s who aren’t too fond of these big $100, $200 per month cable packages […] So they are offering cheaper options,” she explained.
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