Fancy footwork

Time Warner boss cunningly counterpunches Rupert Murdoch

Jeff Bewkes clearly has learned something from all the boxing that his company's cable network HBO has broadcast over the years since 1975's "Thrilla in Manilla". After having already slipped an $80-billion takeover attempt by rival Rupert Murdoch's Twenty-First Century Fox, the Time Warner boss counterpunched with a blow to the whole American pay-TV business model.

A centrepiece of the credible new growth plan rolled out to investors on Wednesday by the media conglomerate behind "Batman," Looney Tunes and CNN was a stand-alone version of HBO next year. While Time Warner was reticent about details of how it will free television's most successful pay channel, it also insisted the decision would not eat away at the lucrative bundled services offered by the cable and satellite operators with which it partners.

For Time Warner, though, the near-term financial benefits look promising. HBO boss Richard Plepler pointed to the "low-hanging fruit" of 10 million customers who buy broadband service without a package of TV channels. If half of them were to pay for HBO, at a wholesale rate of $8 a month, that would equate to $480 million of additional revenue. At a 90-per cent operating margin, as estimated by Bernstein, and put on a valuation multiple of 10, it'd be worth $4.3 billion. That doesn't even count international stand-alone versions of HBO that Time Warner also unveiled.

The number of US cord-cutters and cord-avoiders, mostly younger customers who stop paying for television bundles or never do, also will keep growing. The availability of HBO is bound to accelerate the trend, too. Sooner or later, Time Warner will target a broader group of consumers. At the same time, Plepler made clear he'd be angling for better economics from his cable partners in the next round of contract negotiations. Quoting fictional mobster Paulie "Walnuts" Gualtieri from HBO hit "The Sopranos," he said: "We will get our taste."

Time Warner enumerated other plausible endeavours beyond HBO, including cutting costs, expanding overseas and investing in more original programming, especially for kids, which should help get the stock above the $85 a share Murdoch was offering. By going on the attack, the Fox boss may have put his rival on the ropes. With a bold gesture to shake up the television landscape, Bewkes answered the bell and forced Murdoch and other media moguls to start bobbing and weaving.