HBO and Apple vs. Netflix: A Streaming War Is Brewing

The Apple Watch stole the show at the March 9 media event hosted by Apple (NASDAQ: AAPL). But the event was about much more than the Watch.apple-tv

Indeed, we now know of major changes to the lineup of MacBooks, plus we have learned of ResearchKit and Apple’s push into the health field.

But perhaps the most underappreciated news from the event is the start of a streaming war between Apple and Netflix (NASDAQ: NFLX), with HBO picking Apple’s side.

HBO is owned by Time Warner (NYSE: TWX), a cable company that has long struggled with a loss of customers to Netflix, a process known as “cord cutting.”

For years there have been rumors that Apple would produce an Apple TV. But it wouldn’t be the set-top box known today as Apple TV. Instead it would be an Internet-connected television complete with a beautiful screen, convenient content marketplace and seamless integration with Apple’s product ecosystem.

Such a device could theoretically revolutionize a fragmented market in which many of us participate as consumers.

This would be no different than when Apple entered and then dominated the market for MP3 players with its iPod, or when it entered and then dominated the market for smartphones with the iPhone.

In both cases, Apple was far from the first to enter the market and faced stiff competition. And in both cases, Apple created its own wildly successful marketplace in the iTunes Store and App Store. You know the rest of both stories, as the iPod and iPhone have both become iconic products that define modern culture.

What does this suggest about the future of Apple TV?

Whether or not we see a full television set in the future, the partnership with HBO is important for both companies. You might ask why Time Warner, a cable company that surely loses when consumers choose to “cut the cord,” would want to partner with Apple.

In a competitive environment, the old adage is that if you don’t compete against your own products, someone else will. That is certainly the case with Time Warner and its decision to partner HBO Now with Apple TV. In the face of cable’s decline and the rise of cord cutting, Time Warner doesn’t have to abandon its traditional cable model to begin pursuing alternatives with Apple TV.

Here are two charts from Business Insider that explain why Time Warner is brilliant to be exploring alternatives to the traditional cable TV model.

The first chart shows the difference in the number of hours spent viewing traditional television between 18- to 24-year-olds and 25- to 34-year-olds.

3.13.15 Hours Watching TV

What the chart illustrates is that the younger generation spends less time watching traditional TV than the older generation. This chart is almost like a crystal ball, allowing Time Warner to peer into a future in which younger generations abandon cable TV entirely.

The next chart shows how, for the first time ever, consumers recently spent more time on mobile devices than in front of televisions.

3.13.15 TV vs Mobile

The trend is clear. If you are in charge of a traditional cable company, there is no way you could look at these charts and not want to get in on the mobile streaming and TV-by-Internet action.

HBO Now is going to cost $14.99 per month, roughly double Netflix’s monthly subscription of $7.99. But HBO offers a few things that Netflix can’t.

Game of Thrones, Silicon Valley, Veep – the list goes on. These HBO-exclusive shows are hugely popular. In fact, HBO and Disney’s (NYSE: DIS) ESPN are cited as a primary reason many people keep their traditional cable subscriptions.

That’s about to change, and Time Warner, through its partnership with Netflix, is about to go after the same audience of “cord cutters,” soon-to-be cord cutters and even “cord nevers” – consumers who have never had cable subscriptions.

With HBO content and Apple’s seamless integration across the entire ecosystem of iDevices, the tag team of HBO and Apple has just declared war against Netflix.

DISCLOSURE: I personally own shares of Apple.

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