Netflix predicts HBO will launch 'direct-to-consumer' streaming video service in U.S.

After reporting that Netflix (Nasdaq: NFLX) gained 1.16 million U.S. streaming video subscribers during the third quarter, CEO Reed Hastings told investors that he expects HBO to launch a standalone version of HBO Go that would allow viewers to access HBO original series on the Web and mobile devices without having to subscribe to cable or satellite TV.

HBO recently announced plans to launch a standalone service in Scandinavia called HBO Nordic which will allow viewers to watch original movies and series such as Boardwalk Empire and Game of Thrones without buying a cable or satellite subscription.

"We think it will make strategic sense eventually for HBO to go direct-to-consumer in the U.S., and become more of a competitor to Netflix; so, that is our operating assumption," Hastings said in a letter to shareholders Tuesday, adding that he would expect U.S. consumers would subscribe to both Netflix and HBO.

HBO hasn't yet announced plans to launch a standalone version of HBO Go domestically. The top premium network is owned by Time Warner Inc. (NYSE: TWX), which spun off Time Warner Cable (NYSE: TWC), the nation's second largest cable MSO, in 2009.

Now that Time Warner Inc. no longer owns cable systems, the media giant may not have as much incentive to protect Time Warner Cable and other pay TV providers. But launching a standalone version of HBO Go could also force Time Warner to rewrite its carriage deals with cable and satellite affiliates, who charge subscribers $15 to $20 monthly to watch HBO on TV and through the HBO Go website and applications developed for Apple's iPhone, iPad and Google Android devices.

Hastings also criticized the TV Everywhere websites such as Comcast's (Nasdaq: CMCSA) in his letter to shareholders. "When we compare our viewing growth in those U.S. markets served by leading MVPDs [multichannel video programming distributors] offering TV Everywhere, versus the nation as a whole, we don't see any difference. The implication is that even the best TV Everywhere isn't yet an attractive alternative to Netflix viewing for Netflix members," Hastings wrote.

Netflix reported Tuesday that it grew its domestic streaming video subscriber base to 25.1 million subscribers during the third quarter, after predicting at the end of the second quarter that it would count 24.9 million to 25.7 million subscribers at the end of Q3. Hastings said Netflix expects that it will count 26.4 million to 27.1 million domestic streaming video subscribers at the end of the fourth quarter. If it hits those numbers, Netflix will end 2012 with a 20 percent year-over-year gain in streaming video subscribers.

Netflix said it generated $905 million in revenue during the third quarter, up more than $80 million compared to the $822 million it posted this time last year. It posted a profit of just $7.7 million, down from $9.3 million in the third quarter of 2011. It generated earnings per share of 14 cents, down from 17 cents last year.

For more:
- see the letter to shareholders (.PDF)

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