NEW YORK (TheStreet) --Time Warner (TWX) CEO Jeff Bewkes has been waiting to play his HBO card for a while, and today may finally be that day.
Bewkes is holding an investor conference at the New York-based entertainment company's Columbus Circle headquarters in an effort to rejuvenate a stock price that has lost 16% since reaching a closing high of $87.36 on July 16, five days after 21st Century Fox (FOXA) Chairman Rupert Murdoch made a $85 a share buyout offer for Time Warner. Bewkes successfully deflected Murdoch's overture but has struggled to get shareholders excited again about the owner to TBS, CNN and Warner Bros. Entertainment
To stimulate shareholder interest, Bewkes could shake up the industry by taking the bold step of making HBO's programming available online, much like Netflix (NFLX) . Content providers that have built businesses on the pay-TV model have talked about taking such a plunge but few have actually done it. Bewkes appears to have some options.
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Unlike most pay-TV channels, HBO has wording in its contracts with cable-TV and satellite operators that give it greater leeway than more ordinary channels to break out of the constraints of the pay-TV model and be made available online as a subscription service, according to sources familiar with the contracts. HBO would potentially receive less money from a Comcast (CMCSA) orTime Warner Cable (TWC) if it were to go direct-to-consumer, but it wouldn't jeopardize its place as a premium channel. It could do both.
Going independent, though, is much easier than it sounds for reasons of both technology and revenue. There's also the fact that HBO brings in a lot of revenue for Time Warner, making the situation somewhat difficult.
Back in February, investors were given a rare peak into HBO's finances when Time Warner took the unprecedented step of breaking out revenue and operating income numbers for the makers ofGame of Thrones and The Walking Dead.
HBO revenue for the fourth quarter of 2013 was $1.3 billion, an increase of 8% from the same period a year earlier. Its operating income fell 4% to $413 million, due to a 12% rise in programming costs. However, the message was delivered: HBO is a big entertainment vehicle that's expanding internationally at an enviable clip. It's also a unique brand that connotes quality television.
If indeed HBO chooses to go direct-to-consumer, it will need someone to handle the back-end, a partner who can guarantee that the streaming services actually work and that customers are cared-for. The cable-TV business hardly has a good reputation for customer care, and HBO certainly doesn't want its brand damaged because of endless buffering.
Which company could handle such a chore? Amazon (AMZN) , of course.
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Amazon already has an online content licensing deal with HBO for older programming such as The Sopranos and Six Feet Under and, most importantly, it has the technological wherewithal to handle such an operation. In April, Amazon introduced Amazon Fire TV, its streaming device that competes with similar Internet-to-TV remote controls from Apple (AAPL) , Google (GOOGL) and Roku. It's conceivable that Amazon could operate the back end of an HBO over the Internet.
Amazon's multi-year licensing deal with HBO, announced on April 23 shortly after Fire TV went public, marked the first time that the pay-TV channel would make any of its programming available through an online subscription streaming service. That arrangement appear to have laid the groundwork for an expanded relationship.
At a minimum, Bewkes may decide to create a so-called tracking stock for HBO, a device favored by analysts such as Tony Wibble of Janney Montgomery Scott. A tracking stock would allow Time Warner to retain
complete control of HBO while providing shareholders a vehicle to invest specifically in pay-TV's growth. Because a tracking stock can be issued or withdrawn rather quickly, it would appear as a reasonable option.
But it may not be what investors really want. A souped-up HBO GO available for an online subscription and an alternative to Netflix may delight fans of Games of Thrones and Time Warner shareholders.
This article originally appeared in The Street.
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