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Netflix is on the verge of overtaking HBO

Streaming giant Netflix is closing in on Time Warner's premium cable network HBO.

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Netflix added nearly five million paying subscribers last quarter, bringing its total paid subscriber base to about 71 million.

It still lags far behind HBO in terms of total subscribers, but given its rapid rate of growth, it appears to be only a matter of time before Netflix overtakes the established TV giant.

Reed Hastings, co-founder and CEO of Netflix, delivers a keynote address at the 2016 CES trade show in Las Vegas, Nevada January 6, 2016.  REUTERS/Steve Marcus
Reed Hastings, cofounder and CEO of Netflix. Thomson Reuters

Netflix grew its subscriber base 30% in 2015.

The company added nearly six million domestic subscribers over the course of the year, but much of its growth came from international markets.

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The international segment nearly doubled last year, rising from 16.7 million to 27.4 million. In total, Netflix has more than doubled its subscriber base since the end of 2012, while growing its international business from virtual non-existence to almost 40% of its total.

Time Warner's Home Box Office business includes both HBO and its sister station Cinemax. Time Warner regularly discloses the total number of subscribers these channels have collectively, on both a domestic and international basis, but doesn't break them out. HBO ended 2014 with 46 million domestic subscribers and 92 million international subscribers.

Like Netflix, most of HBO's subscription growth has come from international markets. While the domestic business has been relatively stable over the last five years — rising about 17% — international growth has soared, up more than 120%.

Although the firms are obvious competitors, Time Warner's refusal to break out its premium networks individually makes a direct comparison difficult. The bulk of HBO's subscribers are HBO customers, but Cinemax adds a non-trivial amount: Last year, SNL Kagan estimated that about 31.4 million of those 46 million domestic subscribers were HBO customers.

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Given that they're similar businesses with shared assets, combining them makes sense (indeed, paid-TV providers often offer them as a package deal), but they remain separate channels with distinct brands and somewhat different strategies.

Last year, Time Warner launched HBO Now, a direct-to-consumer digital offering aimed at those without cable subscriptions. In contrast, Cinemax remains wedded to the traditional cable bundle.

Netflix is growing much faster

For that reason, it will be difficult to tell when Netflix overtakes HBO, assuming it eventually does. In 2013, Netflix overtook HBO in terms of domestic subscribers, but if you include Cinemax subscriptions, it remains short to this day.

To its credit, Netflix is growing its total subscriber base much faster. If its current rate of growth were to continue (about 23% per year), it could have more than 160 million subscribers by 2019. Home Box Office's subscriber base grew in 2014 but only around 8%.

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Time Warner's networks are more mature businesses, but growth could soar if a number of initiatives pay off. HBO Now, in particular, remains in its infancy — although it has made its way to a handful of digital platforms, it still isn't as widespread as Netflix.

HBO has begun investing in children's programming to augment its lineup of critically acclaimed, adult-themed content, and is slowly expanding Cinemax's slate of original series. All of these initiatives could result in millions more subscribers in the years ahead.

Of course, comparing the firms strictly by the number of subscribers they have does them something of a disservice. Although they compete for consumers' entertainment dollars and programming, both can succeed.

Disclosure: Mathias Döpfner, CEO of Business Insider's parent company, Axel Springer, is a Netflix board member.

Read the original article on The Motley Fool. Copyright 2016. Follow The Motley Fool on Twitter.
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