We’ve long argued that Time Warner Inc doth protest too much in its attempts to distance HBO from comparisons to Netflix. But separating the premium channel’s earnings results from its other businesses, which the company did for the first time this week, seems to actively encourage it.
It makes sense: Time Warner’s share price can only benefit from greater transparency around the HBO juggernaut: the network behind the hit shows Girls, True Detective and Game of Thrones is a much more profitable business than the still extremely highly-valued Netflix.
The most striking difference between HBO and Netflix is their international reach. As the above charts show, Netflix is still mostly focused on the Americas–though it’s planning a big expansion in Europe this year, and is expected to enter big markets like France and Germany.
Netflix only has 9.7 million (official) paying customers outside the US, compared to HBO’s 84 million; HBO owns or partly owns networks in more than 70 countries. HBO also licenses its content to existing networks in seven other countries (such as Australia and the UK), which typically market themselves as the “Home of HBO,” and makes its shows available on demand in five other countries (including Japan).
Time Warner’s international networks, of which HBO is easily the biggest, made $3 billion in revenue and over $750 million in operating profits last year. By contrast, Netflix’s embryonic international business still operates at a loss.
This leaves plenty of room for Netflix to replicate what it has done inside the US in foreign markets. HBO and Cinemax added 2 million US customers in 2013, their best performance in 17 years, but still less than Netflix added in the fourth quarter alone. If HBO and Netflix are complimentary services in the US, as both Time Warner CEO Jeff Bewkes and Neflix have argued (HBO viewing is higher in Netflix households) chances are the same logic applies abroad.