Bewkes: $5 HBO Not A Change in Strategy

Wholesale pricing wasn’t changed for DirecTV Now

HBO did not change its pricing strategy to allow AT&T’s new DirecTV Now to offer the premium service for $5 a month, according to Time Warner CEO Jeff Bewkes.

Speaking at the annual UBS Global Media and Communications Conference in New York Tuesday, Bewkes said Time Warner has long wanted distributors to aggressively price HBO in order to increase its sub count.

“What we determine or control is the wholesale price. The affiliates, distributors, have been in charge of the retail price,” he said. “That’s why it’s not a change in strategy.”

Time Warner agreed to be acquired by AT&T. Bewkes said he expects that the transaction will be done by the end of 2017, “if not sooner.”

Talking about HBO, Bewkes said the wholesale price is based on HBO’s penetration with each distributors' subs. “We do want to maintain the incentive for future growth,” he said.

But most distributors have put a pretty high price tag on HBO or put it in an expensive premium bundle that required consumers to buy a number of other services.

“It’s impinged on HBO’s growth,” Bewkes said. “That’s why we had to launch [the over-the-top HBO] Now, to make HBO in a more affordable price range. And so we welcome distributors making aggressive price offerings for HBO.”

At the UBS conference on Monday, Les Moonves, CEO of CBS—which owns Showtime, and has not yet made a deal with AT&T to be on DirecTV Now—said that Showtime would not be available for $5 a month on DirecTV Now.

Bewkes also denied speculation that the direct-to-consumer HBO Now had topped out at 1 million subs. He didn’t provide a number but said that sounded low to him. “We didn’t hit the wall, and we aren’t building the wall,” he said. “HBO Now is doing great. You’ll all see that at the end of the year.”

Bewkes said that HBO was increasing its subscriber revenue this year because of a series of new affiliate agreements it has signed over the past year or so.

That will enable it to continue to increase spending on programming as it competes with Netflix and other streaming VOD services. Netflix, which spends $6 billion a year on programming, said it will double its original series next year.

“On the programming side, we’ve got a pretty hefty budget. It’s a couple of billion dollars at HBO,” he said, ticking off the new and returning series at HBO. “There are so many, you can’t even remember them all,” he said.

He said HBO will be increasing its spending on programming. “We think we can do just fine with the economic structure we’ve got. And with revenue picking up, domestic and overseas, then that will answer the questions.”