HBO’s subscription revenue growth
Time Warner’s (TWX) Home Box Office (HBO) segment reported record quarterly revenue growth (for the past 13 years) in 3Q17, driven by 12.4% YoY (year-over-year) growth in subscription revenues. The subscription business, which contributes the bulk of HBO revenues, contributed ~19% Time Warner’s total revenues.
In the past five quarters, subscription revenues have grown at a CAGR (compound annual growth rate) of 3%.
Subscription revenues in 3Q17 rose by $156 million, mainly attributable to $128 million growth in domestic subscription revenues. Higher subscribers growth, increased contractual rates, and international subscriptions were the key drivers for subscription revenue growth.
Reasons for HBO’s growth and future strategies
Specifically, strong viewership of Game of Thrones and the gaining popularity of streaming platforms like HBO Now have also helped to boost subscriber growth for HBO in 3Q17. The seventh season of Game of Thrones witnessed a 33-million average viewership, which was 27% higher YoY.
Similar to Netflix (NFLX), HBO is investing heavily in original content. In September 2017, HBO received 29 Primetime Emmy Awards—the most of any network over the 16 years. Investment in content is helping the company maintain its popularity among TV audiences.
Notably, Amazon.com (AMZN) is also targeting the video streaming space with its low-cost Amazon Prime videos bundled with quick delivery services. The availability of such bundled services could further heat up the competition.
All this means that a successful merger with AT&T (T) could help Time Warner offer bundled services to its subscribers—in addition to expanding its reach going forward.