Time Warner (TWX) plans to launch yet another subscription streaming service in hopes of attracting viewers who no longer subscribe to cable TV.
The newest platform, Boomerang, is kids-focused and will cost $4.99 per month. It will go live sometime in the spring. Owing to Time Warner's many holdings, Boomerang will include children shows such as Scooby Doo, The Flinstones and The Jetsons.
Boomerang follows the $6.99 per month FilmStruck, a similar standalone platform that features films from Warner Bros and others that appeal to fans of classic movies, cult and art house favorites. FilmStruck began in October, about 18 months after Time Warner launched HBO Now, the standalone digital facsimile of the premium pay-TV network that has led the Emmy Awards leader board going back to the days of Milton Berle (only a slight exaggeration).
The overriding theme here is digital and mobile. Boomerang, like FilmStruck and HBO Now, is a hedge against the slow yet steady shrinkage of the pay-TV bundle. For network owners, the pay-TV industry shrunk by 0.8% in 2016 though the decline for cable TV and satellite TV subscribers was even steeper at 1.7%, the fastest rate of decline on record, according to media research firm MoffettNathanson.
Boomerang is all about selling content directly to consumers rather than paying a cable TV or satellite TV operator to do the same. HBO Now recently surpassed the 2 million subscriber mark. That's still peanuts compared with Netflix (NFLX) at 93.8 million worldwide, but at $14.99 per month for HBO Now, it's a good and growing business
For Time Warner CEO Jeff Bewkes, Boomerang appears to be yet another reason for selling the company to AT&T (T) . Content may be king, but in the age of too much content, the real ruler is distribution. Just look at Netflix. It may not have nearly as much programming as Time Warner, but its platform is a phenomenon that has single-handedly disrupted the U.S. media business over the past 10 years.
In the four months since Time Warner announced its sale to AT&T in a transaction valued at $85.4 billion, Bewkes repeatedly has said that he and his board did the deal because they'd grown frustrated with pay-TV. Innovating the viewer experience has never been the strong suit of cable and satellite TV providers. Yes, Comcast (CMCSA) has made great strides with its X1 set-top box, but Comcast is an exception. The shaving of the traditional cable TV bundle is a product of price as well as user-unfriendliness.
Still, it's one thing to own Turner and Warner Bros. libraries of children's programming as deep as Hanna-Barbera, Looney Tunes and MGM, and it's another to be able to make money on them. Yes, Boomerang doesn't need AT&T to launch a standalone streaming service, but when that service can be pushed, or at least featured on AT&T Wireless, the potential for greater distribution is magnified.
AT&T Wireless had 135 million mobile subscribers at the end of 2016, compared with 143 million for Verizon (VZ) . Owning and controlling Time Warner content gives AT&T a means of differentiating its wireless service from that of its chief rivals, which also includes T-Mobile US (TMUS) and Sprint (S) . Boomerang becomes another app it can feature.
"Sentiment around AT&T is relatively buoyant," media analyst Craig Moffett wrote in Feb. 21 report. "Their vertical integration strategy, first via the acquisition of DirecTV and now via the addition of Time Warner, is widely viewed as advantaged versus Verizon's network-based approach. And it hasn't hurt that, in the process, AT&T has simply diversified away from a wireless business that is broadly viewed as the worst part of the portfolio."
If the Trump administration approves the deal, Time Warner may have a distribution network to rival Netflix.