Can HBO GO really boost Astral, Corus?

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Facing the threat of Netflix's growing Canadian presence, Astral Media and Corus Entertainment announced late in 2011 that they will bring HBO's new 'GO' service north of the border.

For those who missed the announcement, HBO GO is an online video streaming service that offers access to HBO's content over the Internet, allowing users to watch the channel's shows whenever they want. They can also go back and view old programs that no longer run. In other words, it operates a lot like Netflix, but isn't for movies.

If you're an HBO-obsessive like me, it's good news -- though it won't fix the network cancelling How to Make It in America and In Treatment, but that's a whole different story. The real question, however, is how much will it actually boost Astral's or Corus's bottom lines, or will it simply help them to protect their current territory?

Scotia Capital analyst Paul Steep ran through the numbers and concluded that HBO GO should serve as a "significant competitive weapon" for the two Canadian firms. The Pay TV market brings in a lot of money -- The Movie Network earned profits before interest and taxes of $31.6-million in 2010, according to regulatory documents, up from $22.3-million two years earlier -- and gives users easier access to Pay TV channels only provides more reason for them to sign up.

"As the Canadian Pay TV market continues to evolve the number of subscribers signing up for premium service has begun to slow and remain below levels reported in the U.S. market," Mr. Steep noted."HBO GO offers both Corus and Astral a valuable product helping to offset the impact of maturing Pay TV growth and mitigate some of the threat associated with the entry of Netflix into Canada."

However, the added value doesn't amount to much, at least by his initial calculations. Assuming both firms "can leverage HBO GO to increase Pay TV subscribers in Canada and achieve levels seen in the U.S. then we could see an increase in net asset value of up to about $1.00 per share for either Astral or Corus," he wrote in a note to clients. South of the border, HBO has 28 million household subscribers 98 per cent of them should have access to HBO GO by early 2012.

Given that $1 per share isn't exactly mind-blowing, and assuming that Internet-streaming content should become an option for more and more channels, I'd say the HBO GO roll out is more of a defensive strategy to retain users, rather than to lure hoards of new ones, regardless of what Astral and Corus will tell you.

As for timing, the Canadian companies predict a 2012 launch for HBO GO, but Mr. Steep noted that this date could very easily be pushed back to 2013.