Time Warner expects HBO Now to be very profitable eventually, but the streaming service will produce losses for the remainder of the year.
HBO Now was announced last year and launched earlier this year. Time Warner expects it to grow into a business generating hundreds of millions in revenue and attract the growing ranks of cord cutters and cord nevers.
“We’re extremely pleased with how well it’s been received,” said Time Warner CEO Jeff Bewkes speaking on the company’s earnings call Wednesday. He didn’t provide numbers on how many people have signed up, but noted it was the top grossing entertainment app on iTunes in May and June.
Bewkes said that in addition to spending on technology and marketing to get HBO Now up and running, the company plans to invest in original programming. It plans to have Bill Simmons, who recently signed a multiplatform deal with HBO, create content for the service. Other announcement are expected in the coming months, Bewkes said.
Time Warner CFO Howard Averill said that the company expects HBO Now to generate losses for the remainder of the year. “That’s typical for an early-stage subscriber business,” he said, adding that “our early experience suggests that HBO Now will be a highly profitable revenue stream for us over time."
HBO CEO Richard Plepler said that HBO Now is aimed primarily at the 10.7 million broadband only homes. So far, HBO Now has not been cannibalizing cable subscribers.
“With regard to any kind of cannibalization, I can tell you, as we predicted and as our research indicated, we've seen less than 1% of HBO subs leave the bundle to go get HBO NOW, which is exactly what we suspected was going to happen,” Plepler said.
Averill said that in the second quarter, HBO Now made only a modest contribution to HBO’s revenues because many of its subscribers were on a 30-day free trial. “We anticipate HBO Now will be a more material contributor to subscription revenue growth over time,” he said.