Time Warner’s (NYSE:TWX) management, which was once not very supportive of the online video streaming industry, has changed its stance over the course of last year. For example, it introduced the HBO Go app which allows HBO subscribers to access the channel’s programming on their Internet-enabled devices. We estimate that Time Warner’s premium movie channel HBO constitutes about 20% to its value, and is therefore the single most important channel. It makes sense for the company to enhance its services, especially in the light of growing competition from online streaming companies such as Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) and others.
Online streaming is a relatively new segment and media companies are aware that, in order to maintain profits, it is best to complement existing pay-TV services with online streaming. This is what pay-TV service providers and media companies have been trying to do so far, and something that Netflix has been focused on as well.
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Recently, Time Warner’s CEO stated that the media industry should progress faster and make premium video available to pay-TV subscribers across tablets and other Internet-enabled devices as quickly as possible.  The idea is to keep customers hooked to the traditional pay-TV subscription model and give them what they want before they move on to other alternatives.
Furthermore, the company believes that there is an opportunity with the launch of its UltraViolet media technology.  UltraViolet lets DVD and Blu-Ray disc buyers get an additional digital copy of the movie which they can store, manage and access via Internet-enabled devices. It seems that Time Warner’s strategy is to push for the adoption of online streaming, but in a way that does not hamper traditional DVD sales and pay-TV subscription services.
Our price estimate for Time Warner stands at $40.20, implying more than 5% premium to the market price.Notes:
- Time Warner’s Bewkes talks up TV for tablets, Market Watch, Deb 28 2012 [↩]
- Time Warner CEO Bewkes defends UltraViolet launch, pumps digital, The Los Angeles Times, Feb 28 2012 [↩]