Exactly. And when the numbers do make sense, HBO will be there and likely be there faster than anyone else in the space. Why? Because they know how to continue to feed a business model that works for them (and is much more profitable than Netflix I might add), while also keeping an eye on the future.
If HBO were to go internet-only, it'd lose the major cable operators heavily promoting them for free. They only market premium channels so hard because it helps sell expensive cable TV service. HBO would lose subscribers immediately as operators no longer actively replace subscribers for them as others churn out.
To make up for the lost stream of customer acquisition, they'd have to:
a) Cut prices by more than 50% to become competitive with Netflix/Hulu. This will cost them billions a year.
b) Increase their catalog size significantly, which would cost billions a year.
To give you an idea of the costs of licensing, HBO's last major deal was with Universal studios and cost them over $2 billion for access to their future movie catalog.
It's hard to come up with a scenario where cutting their exclusive tie with cable makes sense financially right now. It's not "bullheaded" to say "no, we shouldn't throw away $10+bn/year to give Bob his internet subscription while we're in the midst of a death battle for the future of digital entertainment distribution".
Netflix can do it because (a) they have a big catalog and low prices to entice subscribers with, (b) they got much of their catalog on the cheap before studios fully understood its value; this perk is going away as licenses renew, (c) it has no choice. Whether Netflix can grow its original content business within the constraints of its low subscription price faster than its licensing costs get out of hand is still up in the air.
HBO would lose subscribers immediately as operators no longer actively replace subscribers for them as others churn out.
But that's going to happen -- and is happening -- anyway.
"no, we shouldn't throw away $10+bn/year to give Bob his internet subscription while we're in the midst of a death battle for the future of digital entertainment distribution".
"What? A phone that plays music?! Are you crazy? Do you realize how much money iPods brought to this company last year?"
I don't think anyone at HBO believes they won't go to an internet subscription service, but I do believe they still think it is too soon to switch. They have to pick the point correctly or have some bad quarterly earning reports.
And the net profit on a diamond necklace is higher than either. I'm not sure what point you're making.
Apple didn't build the iPhone because it was profitable. They built it because they knew that a race was about to begin, in which second place was really going to suck. HBO is faced with the same reality, whether they believe it or not.
And the point I'm making is that the choice wasn't really theirs. Either they were going to sell the most profitable smartphones, or somebody else was going to.
Let's take a look at subscriber growth on Netflix versus HBO over the next few years, and resume the discussion then. As RIM learned, the first few derivatives of that number are important.
Perhaps you've forgotten how perfectly awful smart phones were before the iPhone.
The original pitch was never "check out these amazing apps". There were no apps. People's minds were blown by the fact that you could get a non-hideous phone with a UI not assembled by two troupes of rival chimpanzees.
HBO makes a profit of hundreds of millions on revenues of <$3 billion a year [http://ir.timewarner.com/phoenix.zhtml?c=70972&p=irol-ne...], while Netflix's annualized profits are expected to be roughly $15-20 million on estimated revenues of $3.6 billion.
HBO could quite literally suspend operations for the next decade and it would still be vastly more profitable than Netflix, especially now that Netflix has begun incurring massive content production/acquisition costs (see e.g., http://www.marketwatch.com/investing/stock/nflx/financials and the massive drop in Netflix's net income after its sweetheart content deals with Starz and other media companies expired).
Netflix doesn't already have a huge amount of revenue from cable providers. Whether HBO could "afford" a streaming-only option is irrelevant; the question is, could they make as much?
And you know this how? I'm pretty sure the execs at HBO have run the numbers.
Why HBO Can't Afford To Offer A Stand-Alone Streaming Service http://www.forbes.com/sites/erikkain/2012/05/11/why-hbo-cant...