HBO Now Isn’t Making Money Yet, Execs Admit

Four months after it launched, HBO Now isn’t making money, but Time Warner executives told analysts they expect the streaming service will be an important part of the premium cable channel’s business.

“Our early experience suggests HBO Now will be a highly profitable revenue stream over time,” said Howard Averill, Time Warner’s chief financial officer, during a Wednesday earnings call. He added that he expected the service will “generate losses for the remainder of the year,” but expected a more positive impact on earnings would be evident in the third quarter.

The reason that HBO Now is still in the red is that its technology and marketing costs exceeded the $21 million in additional revenue it contributed. It added to subscriber growth, but many of the new customers didn’t pay for the service because they received free 30 day trials, executives said. The company did not say how many HBO Now subscribers it has attracted, but estimates are that they have as many as 1.9 million customers.

Time Warner hopes HBO Now will appeal to some of the roughly 10.7 million consumers who don’t subscribe to cable, and instead use broadband to access entertainment options. The company also hopes the offering will bring in some of the roughly 70 million cable subscribers who do not currently pay for HBO. The standalone streaming service has lined up digital players like Amazon and Android, and telecom companies like Verizon, but is still trying to convince many cable providers that it won’t cannibalize their business.

To that end, HBO chief Richard Plepler stressed that less than 1% of HBO subscribers have canceled cable in favor of HBO Now.

“We see this as additive for our partners…there’s gold in the hills for them too,” said Plepler.

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