HBO Said Valued at $20 Billion by Fox Seeking Netflix Killer

Rupert Murdoch wants HBO so badly, he’s willing to buy all of Time Warner Inc. to get it.

HBO is one of the main reasons, along with rights to sports programming and international content distribution, that Murdoch’s 21st Century Fox Inc. offered $85 a share for Time Warner, said a person familiar with the matter. Fox and its advisers value HBO, the home of buzzworthy TV like “Game of Thrones” and “Girls,” at more than $20 billion, the person said. Time Warner said today it rejected the offer from Fox.

Fox sees HBO, which offers an online-streaming service to cable subscribers to compete with Netflix Inc., as having more potential to expand internationally and on mobile and digital platforms, the person said. While Fox doesn’t expect to be able to run the business better than Time Warner has, it can add its own more prestigious programming, such as “The Americans,” to the network’s offerings, the person said. HBO is key to any strategy Fox pursues for online-video services, the person said.

“It’s really now HBO that’s the driver, and I think that’s the Holy Grail that Rupert had his eye on,” Porter Bibb, managing partner at Mediatech Capital Partners, told Tom Keene and Scarlet Fu in a radio interview on “Bloomberg Surveillance.” “It’s a huge money maker with a huge potential. And probably the only Netflix killer that’s in the world right now.”

Rejected Bid

Fox could make a higher offer than its earlier bid, depending on Time Warner’s willingness to begin talks and open up its books for Fox, a person familiar with the matter said. The companies said today they aren’t currently in discussions.

The proposal Time Warner rejected included 1.531 Fox shares and $32.42 in cash, New York-based Time Warner said today in a statement. The transaction would be risky for regulatory and operational reasons, and Time Warner’s assets will increase in value if the company continues on its own, it said.

Unlike Netflix, which is available without a cable subscription, HBO Go is only offered to people who already pay for the premium channel through cable or satellite providers. In the past few years, Netflix has gone head-to-head with HBO in developing its own critically acclaimed shows. “House of Cards” and “Orange is the New Black” helped Netflix garner 31 Emmy nominations this month, compared with HBO’s 99 for shows like “Game of Thrones,” which received 19 on its own.

In its competition with Netflix, HBO has benefited from being part of a larger company because it can share costs with Time Warner’s other networks and studios. The network produced $1.9 billion in earnings last year, leaving out interest, tax, depreciation and amortization, on revenue of $4.9 billion. Netflix had $277 million in Ebitda on $4.4 billion in sales.

“If they succeed, if Rupert gets Time Warner, what he’s got is HBO and Warner Brothers and that’s it,” Bibb said. “He doesn’t need another movie studio. 21st Century Fox is doing great right now. It’s HBO.”