Time Warner CEO: HBO Is The Original Netflix

For a monthly fee, you get access to second-run movies and some well-regarded original content. While that sounds a lot like Netflix, it’s also been HBO’s model for about 40 years. And the CEO of HBO’s parent company doesn’t see the new kids on the premium content block dethroning the old king anytime soon.

When asked by BusinessWeek how Netflix has changed the strategy of HBO, Time Warner CEO Jeff Bewkes — who, again, is not the CEO of Time Warner Cable — turned the question around, asking, “How has the strategy of HBO created the strategy of Netflix? HBO is the original subscription video-on-demand company. We were repurposing first-run movies, and then we added original programming.”

Yet in spite of HBO’s legacy, its online-only HBO Now is tiny compared to Netflix. HBO Now, which has been around for a little more than a year, just recently crossed 1 million user mark. Compare that to the 46 million paid Netflix subscribers in the U.S. The gap narrows slightly when you factor in the 30-40 million or so households with traditional HBO accounts, meaning they could also be using the HBO Go streaming service.

Bewkes does see HBO’s streaming presence growing, but only sees cord-cutting as a small part of it.

“There are about 12 million broadband-only households—people who don’t have cable bundles,” he explains. “And we will probably end up in half of them.”

So by his estimate, HBO Now will likely expand to upwards of 7 to 8 million in the coming years; still only a fraction of Netflix in spite of the similar concepts.

Where Bewkes wants to make the biggest gains is among the 70 million or so American households with cable but without HBO.

“So whether they get HBO using HBO Now, or whether they get it by signing up [through a pay-TV service], doesn’t matter to us,” admits Bewkes. “We’re looking at 45 million subscribers going up to 50, 60, 70 million.”

For all his talk about expanding the online audience, Bewkes demonstrates a total lack of understanding when it comes to net neutrality.

Those FCC rules prohibit last-mile internet service providers — the Comcasts, Charters, Verizons of the world — from blocking, slowing down, or prioritizing content based on who’s sending it. Yet Bewkes repeats a long-disproved cable industry talking point that Netflix is going out over broadband connections “without paying for the usage.”

The fact is that Netflix pays huge bills to the bandwidth providers who do the heavy lifting, carrying the bulk of Netflix data to these last-mile networks. In recent years, Netflix also began paying a number of those ISPs for more direct access to their networks. That doesn’t sound like free to us.