Although HBO’s announcement of a stand-alone OTT service next year is in keeping with its overriding strategy to leverage its content and production capabilities and boost monetization opportunities within the evolving consumer ecosystem, Fitch Ratings doesn’t believe the gambit will have much influence on the premium network in the short term.
As such, the New York-based research firm does not view the 2015 launch of HBO’s OTT service as a material threat or benefit to parent company Time Warner’s credit profile over the near term.
Fitch, though, believes the OTT service, which builds on HBO Go, does position the prrogrammer to capture meaningful revenue and cash flow growth opportunities, which can improve financial flexibility and strengthen Time Warner’s credit profile within the current ratings. Fitch said execution risks are present related to the build out of business support infrastructure if the company elects to distribute at a retail level.
That won't be the case initially. Noting that many specifics surrounding the content offering and pricing have not been promulgated, Fitch’s position stems from HBO's intent to work with established distribution partners to increase domestic penetration of HBO's service, convert non-revenue generating subscribers and address a growing market of potential subscribers outside the multichannel video service universe. To that end, HBO’s initial target the OTT service at an estimated 10 million broadband-only domestic households that do not have access to premium programmer’s linear service.
Fitch said the HBO OTT play, along with the Oct. 16 bow of CBS’s multiplatform digital subscription service, signify the ongoing shift in video consumption patterns. The company further underlined that point by noting that ESPN and the NBA have established a framework for an OTT service in which the league would hold an equity positions. As part of the new nine-year rights deal, Turner Sports, also part of Time Warner’s portfolio, has also secured additional digital rights for TNT and its online Bleacher Report service.
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