Time Warner Inc.'s (TWX) Home Box Office (HBO) is removing its shows from Amazon.com, Inc.'s (AMZN) Prime streaming service at the end of next year. During Time Warner's earnings call, Richard Pepler, HBO's chief executive officer, said that the company does not plan to renew the licensing for its shows on Amazon's service beyond the end of 2018. This means that HBO shows that are on the air currently and have been renewed for a new season will not become available to Amazon subscribers. Per the agreement inked between the two companies, Amazon has the rights to stream a show only after it has run its course on HBO. (See also: Why HBO May Be About to Boost Time-Warner Stock.)
Variety writes that Amazon's streaming service has become a competitor to HBO Now, Time Warner's streaming service that already has an extensive library of shows. The agreement between the two companies provided HBO with a means to gain audiences for its service. Pepler referenced the "enormous momentum" of sales driven through Amazon's service for HBO Now during his conversation. According to Variety, Time Warner's move indicates a change of priorities for HBO. "The move reflects HBO's focus on growing the subscriber base of its HBO Now standalone digital service," the publication writes. (See also: How Are HBO, Amazon and Google Working to Overtake Netflix?)
HBO is known for premium content that is generally popular with critics and audiences alike. For example, three of its shows – "Game of Thrones," "Silicon Valley" and "Girls" – are wildly popular with TV viewers. HBO had revenue of $1.5 billion in the latest quarter – approximately 20 percent of Time Warner's overall revenue – and profit of $583 million.
Time Warner launched HBO Now in 2015 to connect with millennials and audiences who do not have cable subscriptions that consume content across multiple devices. As of February this year, the service had approximately 2 million domestic subscribers. At a subscription rate of $15 per month, that translates to roughly $360 million in annual revenue. It could also be a substantial source of profit for the company in the future. This is because subscribers to the service pay Time Warner directly instead of paying their cable company. (See also: Hulu, Netflix and Amazon Instant Video Comparison.)
For its part, Amazon is said to have ramped up its spending on producing original content for Amazon Video. The service, which is already present in 200 countries, is reported to be spending $4.5 billion on original content this year. HBO has a content budget of $2 billion for this year. (See also: 3 Predictions for TV in the Next 10 Years.)