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Time to Hear Time Warner's HBO Plan. How Far Will Jeff Bewkes Go?

This morning, investors get to hear how Time Warner thinks it can grow. HBO's plans may be the most interesting.

HBO

Jeff Bewkes needs to convince Wall Street that he made the right move by rejecting Rupert Murdoch this summer. Which means he needs to convince Wall Street he can make Time Warner more valuable.

Most of that effort, which the Time Warner CEO will outline this morning at an investors’ presentation, should be pretty straightforward: Cut costs at his movie studio and TV networks, and hope they can make more hits.

HBO could be a different story. The pay channel is already a huge business for Time Warner, generating nearly $5 billion in revenue last year. But there’s more than one way for Bewkes to wring more value out of his subscription business.

And last month, he signaled that he’s willing to try more adventurous strategies than he has previously talked about, telling investors that he was “seriously considering” new online distribution options.

I don’t expect Bewkes to announce anything as dramatic as a Netflix-style, direct-to-consumer, over-the-Web plan today. But I do think he’ll want to flesh out some of his options — at least in part to show investors that he has some, and to give them a growth story to get excited about.

Here’s a speculative list of strategies Bewkes may lay out for HBO today, in rough order of plausibility:

Stay the course, but make it more profitable. HBO is already a cash cow — last year it generated $1.8 billion in operating profit. But analysts believe it could make more money without any structural changes.

The company has already indicated it will cut costs. But it could also get more from its pay-TV distribution partners by re-working its deals with them. For instance, a chunk of HBO’s 30 million subscribers don’t make any money for HBO, because distributors like Comcast* are allowed to keep all subscription revenue after they hit a certain goal. Changing those terms, and little else about the way HBO works, should be doable.

Disconnect HBO from the pay-TV bundle — but keep working with the pay-TV providers. Bewkes and HBO boss Richard Plepler have been musing out loud about this one for a couple years: Instead of requiring HBO subscribers to also get a package of TV channels, they’ve talked about selling the service as a broadband-only option. But in this version, they would do it in conjunction with pay TV/broadband companies like Comcast by having them handle the billing and continuing to share revenue.

That way HBO gets a new set of potential subscribers — a set of Internet-only homes that’s probably in the single-digit millions — while keeping its pay-TV partners happy. In theory, that is: When HBO first started talking about this stuff, I got the sense some of their pay-TV distributors weren’t happy about the idea at all.

Break free of pay TV, and sell a Web video service directly to consumers. A few years ago this seemed implausible for HBO or any other TV programmer. Now, several of them are floating the idea, including Showtime and ESPN. The upside here is obvious: HBO gets a direct relationship with its customers for the first time ever, and it gets to keep all of the subscription revenue it generates instead of splitting it with wholesalers.

It’s unclear how far away the company is from having the capability to actually do this. In addition to a streaming service robust enough to handle demand, it would also have to build marketing and billing services, and that’s something the company has no experience with.

One possible solution I’ve heard industry people suggest, by the way, is to use an Internet middleman instead of a cable middleman — that is, get a company with an existing Web video service, like Amazon, to handle billing and streaming.

More worrisome than any technical detail, though, is what doing this would do to HBO’s relationship with the cable guys that work with it today — the same cable guys Time Warner relies on for much of the rest of its business as well.

For years, Time Warner has argued that messing with that structure isn’t worth any gain a Netflix-style business would create. But now — perhaps because of Murdoch, and perhaps because things really have changed — Bewkes is at least willing to acknowledge that the idea has merit. Wouldn’t it be something to hear him go even further?

* Comcast owns NBCUniversal, which is a minority investor in Revere Digital, Re/code’s parent company.

This article originally appeared on Recode.net.

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