Time Warner Should Sell HBO to Apple (Guest Column)

HBO’s commercial and cultural dominance is being threatened. But there is a bold solution that would cement its primacy over the next several decades: Time Warner should sell HBO to Apple.

Think of the company in terms of its biggest hit, “Game of Thrones”: From afar, the Wall looks secure. In 2015, the pay cable network made $2 billion in profit; unveiled its long-awaited standalone streaming service, HBO Now; signed a slew of international licensing deals; and sauntered home with 43 Emmys, the most in its history.

But peer closely, and you can see that the sheen of profits and awards are masking a slow erosion of HBO’s once unassailable competitive advantages. The Wildlings are closing in.

HBO’s reign over premium television was fortified on the back of key competitive advantages that were once ironclad but are now dwindling.

For over two decades, scripted original programming defined and differentiated HBO’s brand. Amidst an ocean of commodity programming, HBO was an island of originality and complex emotion.

Today, however, the sea is littered with competition. AMC, FX, Showtime, Starz, Amazon Prime Video and Netflix have breached HBO’s moat around edgy, cinematic scripted fare. HBO’s monopoly on provocative, scripted storytelling has been busted.

HBO’s seemingly unending awards bounty has underwritten a perception of quality that has served to rationalize HBO’s premium price in comparison to competing subscription services.

But the quality gap is closing. Last year, Netflix received eight Golden Globe nominations vs. HBO’s seven, and 10 Screen Actor’s Guild nominations to HBO’s six. It’s a remarkable achievement given that Netflix only began making its own shows in 2011.

The pace at which the quality of Netflix’s programming is improving should concern the HBO brass. It is going to get increasingly difficult for HBO to ask subscribers to pay $15 per month if Netflix offers just as much quality programming for a much lower price. To date, HBO’s 120 million global subscribers have supplied a giant source of stable financing that has nourished television’s highest production values and allowed HBO to outbid competitors for the best projects.

But Netflix will spend $6 billion on content in 2016, compared to $2 billion for HBO. This growing disparity sets in motion a nasty feedback loop; less money to spend on new content results in fewer new subscribers, which results in even less money to spend on new content. In content, scale supports innovation.

It is unsurprising then that all of the meaningful advancements in the creation and distribution of content — the full-season binge, the slow upending of the traditional theatrical window, and 4K streaming — are happening at Netflix. In order for HBO to pioneer the next wave of content innovations, it must get bigger.

“Last year, Netflix received eight Golden Globe nominations vs. HBO’s seven, and 10 Screen Actor’s Guild nominations to HBO’s six.””
ben weiss

The challenges facing HBO will only intensify. But an HBO/Apple marriage would address these problems and create lasting financial and strategic benefits. With over $40 billion per year in free cash flow (versus Time Warner’s $3.6 billion for 2015), Apple could invest a small percentage of its cash to double HBO’s content budget to $4 billion. This incremental content investment would fund the expansion of a global library of original programming across every vertical, including kids, news, film and sports, enriching the value of the HBO subscription. The return on Apple’s investment would compound as HBO’s content library grows.

Apple’s digital ecosystem, installed device base and retail stores create an unparalleled global distribution network that provides the infrastructure necessary to sign up the next 50 million HBO subscribers. By marrying its distribution with HBO’s premium content, Apple could create a magical union of technology and storytelling.

Buying HBO would give Apple a productive use for the $200 billion in cash currently sitting in its bank, and provide a platform to expand further into premium video. HBO’s $2 billion in stable, recurring subscription cash flow would help Apple’s languishing earnings multiple re-rate higher, pleasing its frustrated investor base.

Last but not least, HBO CEO Richard Plepler; Apple’s iTunes chief, Eddy Cue; and Apple Music chief Jimmy Iovine are all friends. Apple was the launch partner for HBO Now. Apple has a profound respect for artists. The cultures would harmonize and invigorate each other. Perched atop its Drogon, HBO would rise again.

Ben Weiss is manager of New York-based investment fund 8th & Jackson, which focuses on media.

Popular on Variety

More Voices

  • "The Stockholm Syndrome" - Pictured: Rajesh

    Emmys: Is It Time to Give Multicams Their Own Category? (Column)

    The question of whether multi-camera sitcoms are a dying breed isn’t a new one. The few remaining purveyors of the format, including “The Big Bang Theory” executive producer Chuck Lorre, have been asked that question for years. But even as Lorre ventures into the single-camera world with such shows as the Golden Globe-winning “The Kominsky [...]

  • Veep HBO

    Celebrating Julia Louis-Dreyfus, Emmy's Comedy Queen (Column)

    Let’s take a moment to give Julia Louis-Dreyfus some much-deserved praise. As HBO’s “Veep” ends its run — and aims to add a coda to its already amazing haul over the years at the Emmys — the actress is poised to make history one more time this September. All signs point to another win in [...]

  • Emma Watson MTV Movie Awards

    It's Time for the Emmys to Eliminate Gender-Specific Acting Categories (Column)

    As TV and storytelling continue to evolve, does it still make sense to silo male and female performers into separate Emmy categories? Splitting up “outstanding actor” and “outstanding actress” awards as if they’re different skill sets seems like an outdated practice — yet combining them, and eliminating half of the key acting Emmys in the [...]

  • The Good Place NBC

    Broadcasters Committed to Emmy Telecast Despite Cable, Streaming Dominance (Column)

    Here’s what you won’t see much of at the Primetime Emmy Awards on Fox: Fox.  It’s Fox’s turn to telecast the ceremony, yet it’s a somewhat bittersweet affair for the network, which only landed 18 nominations this year. That means few Fox stars will even be in attendance at the Microsoft Theater, let alone onstage, [...]

  • Eugene Levy Schitts Creek

    Emmy Nods to Veteran Actors Prove Importance of Longevity (Column)

    Despite some well-documented snubs, Television Academy members did a great job with this year’s Emmy nominations when it came to recognizing new series, such as FX’s “Pose” and Netflix’s “Russian Doll,” as well as rising talent including Anthony Carrigan (HBO’s “Barry”), Joey King (Hulu’s “The Act”) and Billy Porter (“Pose”). That spotlight on fresh series [...]

More From Our Brands

Access exclusive content