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Winter Is Coming for Time Warner's HBO

By Daniel B. Kline – Jul 19, 2016 at 10:56AM

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The pay cable network has fallen behind Netflix when it comes to producing hit shows.

HBO's Game of Thrones is nearing its end. Image source: HBO.

For years, Time Warner's (TWX) HBO had the premium television space nearly all to itself.

Occasionally one of the big broadcast networks stumbled upon something prestige-worthy, but the playing field was entirely different. Now, HBO must compete for creators and viewers of top-tier shows not only with more cautious traditional television, but also with cable outlets like AMC, along with pay-TV rivals Showtime and Starz (STRZA) plus streaming services including Netflix (NFLX -0.07%), Hulu, and Amazon (AMZN -1.63%) Prime Video.

That's at least a handful of outlets for the top talent that once streamed to HBO for the freedom it offered to consider. In addition to having to fight for projects, the pay-cable leader, which now offers a streaming service, has to release its shows into a much more competitive world.

All of these changes make having a hit more valuable and Time Warner's crown jewel has grown a little barren in that area. Yes, it still has Game of Thrones (GOT), the megapopular juggernaut that accounted for 23 of HBO's 94 industry-leading Emmy nominations this year, but the end is near for that show and a replacement may not come easily.

How bare is HBO's cupboard?

It's fair to call Game of Thrones HBO's only mass-market hit. The network has other successful shows, including Veep, which itself earned 17 Emmy nominations, but that's more of a niche hit than a breakout success.

On the plus side, the network hits lots of singles and doubles. Shows like Last Week Tonight with John Oliver and Real Sports with Bryant Gumbel have consistent, dedicated audiences -- fans that may subscribe at least in part due to those shows. In addition, HBO recently premiered Any Given Wednesday with Bill Simmons, another personality with a loyal following who may help keep subscribers on board while bringing in a few new ones. 

The premium network also has an expanded relationship with Vice, which will eventually produce a daily news show on the network and Larry David has said he will make another season of the popular Curb Your Enthusiasm. That's certainly not an unattractive lineup, but it's one lacking in draws aside from Thrones, a show nearing its end with no specific premier date for its next season.

When is GOT going to end?

HBO has already announced that its signature hit would only last two more seasons. In traditional TV, where a season equals 22 episodes, that would give the network plenty of time to line up a replacement. Unfortunately, in this case, GOT's producers have already said they only need about 15 episodes to finish telling the story they intended to tell.

So, while they will be split over two years, the remaining Thrones seasons will be roughly a third the size of a traditional television series. And, to make things worse for the company, the show won't return in its traditional slot.

"Now that winter has arrived on Game of Thrones, executive producers David Benioff and D.B. Weiss felt that the storylines of the next season would be better served by starting production a little later than usual, when the weather is changing," said HBO President Casey Bloysin in a recent statement reported by Consumerist. "Instead of the show's traditional spring debut, we're moving the debut to summer to accommodate the shooting schedule."

What does this mean for Time Warner?

For years, HBO moved from hit to hit. Even when it had a dry spell, consumers were forgiving because they had no place else to go for premium programming. Now, the network operates in a world where the public can leave for Netflix, Hulu, or Amazon Prime (all of which cost roughly $10 a month compared to HBO's $15).

The best way to stop that from happening is to deliver a big hit like The Sopranos, Six Feet Under, Sex and the City, or any of the network's other signature series. Unfortunately for HBO, that next huge show has been hard to come by. That's not for lack of trying, as the channel has mounted major productions like Vinyl (from Martin Scorsese and Mick Jagger) and Luck (starring Dustin Hoffman), which did not click with viewers.

HBO does have the much-delayed science fiction thriller Westworld in its pipeline and some of the above hits came out of nowhere -- so it's possible the next big hit is a series even the network does not have pegged for that slot.

Still, for Time Warner investors, this is a time for worry. When Netflix has big show after big show and even basic cable has series like The Walking Dead, it becomes increasingly harder for consumers to justify paying for a premium network that has a few shows they sort of like. HBO needs a big hit, and maybe Westworld can be it, but if it's not, when GOT ends, the main reason for paying for the one-time premium leader may end as well.

Daniel Kline has no position in any stocks mentioned. He read half of Game of Thrones before putting it down for good, maybe the second time in his reading life he has ever done that. The Motley Fool owns shares of and recommends Amazon.com, Netflix, and Time Warner. The Motley Fool recommends Starz. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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