Almost 42 years after arriving as a premium cable network in the US, HBO is offering an alternative: an over-the-top broadband service aimed at American non pay-TV homes, set to launch next year.

At the same time, the pay-TV stalwart is keen to further exploit existing cable partnerships, to incrementally grow new subs while retaining old ones.

It’s all about monetizing HBO’s storied brand and content pipeline.

"There is a huge opportunity in front of us and we will use all means at our disposal to go after it,” said HBO CEO Richard Plepler, speaking yesterday on Time Warner’s investor day. “This is the most exciting inflection point, domestically and internationally, in the history of HBO."

Management appeared confident about protecting their current pay-TV offerings from cannibalization while gaining significant ROI and dollars from the new OTT offering.The announcement was a key takeout for investors and money managers attending the investor day, Time Warner’s first since 2010.

In general, strategic insight and financial goals were impressive but execution and product details light, especially on HBO's OTT foray.

Key takeouts included:

1. Time Warner CEO Jeff Bewkes told investors to expect high double-digit growth in earnings per share (EPS) between 2013-18, with low double-digit growth in adjusted operating income. The latter will be driven by low double-digit growth at Turner and HBO, and high single-digit growth at Warner Bros. Bewkes said that the famously siloed media company would be more collaborative, with greater cooperation between Turner, HBO and Warner Bros. Earnings momentum will be underpinned by robust top-line growth and significant cost savings.


2. HBO’s OTT service will target 10-15 million broadband-only households in the US. Management are confident this initiative would not cannibalize existing services with cable operators or weaken the competitive/bargaining position for Turner’s branded cable networks. HBO is also keen to double-down further in the existing pay-TV ecosystem, to help and occasionally compel cable operators to extract new customers while holding onto old ones.


3. Turner and HBO are targeting international expansion, led by Latin America. Turner continues to focus on cost restructuring but is also investing in growth plans at home, Latin America and parts of Asia. The value of original content will exponentially grow, with Turner’s spend on original series doubling to US$1 billion by 2018. The company is also angling for double-digit subscription fee growth from the US market.
   
   Turner will also expand the Boomerang brand around the world, as a flank channel to Cartoon Network. In Asia, its potency in Australia and Thailand (through a local JV) is already proven. Turner has also now formed a partnership with Warner Bros (DC Comics, Looney Tunes, Hanna-Barbera and Tom & Jerry) to expand its kids business and related franchises around the world.


4. Warner Bros is keen to develop global TV and movie franchises from DC Films, JK Rowling and Lego. Warner also wants to capitalize on the Chinese movie box office in the future, exploiting domestic partnerships on the mainland.

HBO HITS A NEW HIGH IN 2014

While there is general agreement on the immediate target market for HBO’s OTT service (10-15 million broadband-only subs in the US), execution, pricing, cost and product details were not shared, and are likely to be apparent only in the coming months.

However, the premium on successful execution of such a service is now huge. Also important will be its potential expansion to international markets (probably only Europe in the short-to-medium term). The company has launched standalone OTT services only in the Nordic markets, where it claims some success.

Elsewhere, HBO is keen to grow its existing US pay-TV business. It appears to be doing a great job so far.

HBO’s bouquet (including Cinemax) has grown its customer base by 3 million to 46 million to-date this year, its strongest increase in 30 years. More than 90% of this growth has been driven by HBO alone.

Over the past three years, the HBO bouquet has added close to 7 million new customers; a significant chunk has yet to generate revenues, but will start doing so over the next three years.

Broadly, the target is to help HBO reach as many of the 70 million US households not taking its pay-TV service, as it can.

Outside the US, HBO will continue to prioritize branded linear network growth – its channels are in 60 countries with 90 million subs – as well as licensing to third party distributors (a strategy pursued in 12 markets).