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HBO Isn't Netflix. Which Is Why It Should Stay With Time Warner.

Fun idea. Won't work.

Peter Kafka covers media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.

Three years ago, Netflix said it wanted to become HBO.

Now there’s pressure for HBO to become Netflix, by spinning out from parent company Time Warner.

The idea, according to some investors and other folks who have been murmuring about the theory for a while, is that pulling HBO out of Time Warner will make it much more valuable. Because Wall Street thinks HBO is like Netflix, and Wall Street thinks Netflix is worth a lot of money.

I asked Netflix CEO Reed Hastings about an HBO spinoff this week and he said it was a dumb idea. In a report today, Barclays analyst Kannan Venkateshwar says the same thing. I agree with them.

Here’s the short version of the “don’t spin HBO” argument: While HBO sort of looks like Netflix — HBO has about 95 million subscribers and probably generated $5.6 billion in revenue last year; Netflix has 70 million subs and probably did $6.8 billion — Wall Street loves Netflix because Netflix is growing very, very fast. And HBO isn’t:

And spinning out HBO won’t help HBO grow any faster. Even though Time Warner is starting to offer HBO as a standalone product sold over the Web, almost all of its business is tethered to traditional pay TV providers, who retail the service to their customers. HBO’s best bet for growth is getting better deals with those companies (which, kind of paradoxically, is one of the reasons it is selling HBO over the Web in the first place).

Meanwhile, even if Wall Street does reward HBO for breaking free of Time Warner, it may punish Time Warner for losing HBO. An HBO-less Time Warner would be dominated by its Turner networks, a group of cable channels that are not setting the world on fire, and would have even less leverage with cable distributors without HBO to back it up. Or, in Venkateshwar’s words: “A spinoff could offer some dis-synergies for [Time Warner].”

So here’s an alternative theory: Since Time Warner has gotten very good at selling off stuff it doesn’t like (AOL, Warner Music Group, Time Warner Cable and most recently Time Inc.), why not keep going and parcel off Turner? That one may not work as a spinoff, but there are certainly lots of buyers for widely distributed cable channels, even if they’re not crushing it.

Then, who knows? Maybe before Jeff Bewkes retires — he just re-upped his contract to stay through 2020 — he ends up spinning off Warner Bros., too. Which would leave him owning a single company: HBO. There! Same result, different timeline.

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