Netflix CEO: HBO Go is the true threat

[Woochifer]

Considering all of the boneheaded and tone deaf moves that Netflix has made this year, CEO Reed Hastings is rather astute in his assessment of the competitive landscape for streaming video. While much of the tech press (which IMO is even more boneheaded and tone deaf) has focused on how Netflix stacks up against Amazon and Blockbuster/Dish Network's subscription streaming services, HBO very well could become Netflix's biggest competitor in the years ahead. I wrote about this a few months ago (http://forums.audioreview.com/news-rumors/hbo-go-another-challenge-netflix-4m-downloads-coming-soon-consoles-tvs-37021.html), and it seems that Netflix sees things the same way.

As new competitor emerges, Netflix CEO says HBO Go is the true threat - San Jose Mercury News (http://www.mercurynews.com/business/ci_19481949?source=autofeed#)

While Amazon and Blockbuster are busy ramping up their video streaming services, Netflix has been losing money because of subscription cancellations and rapidly rising rights fees. Hastings is actually unconcerned about Amazon and Blockbuster, because he estimates that competing video streaming providers will become similarly saddled down by high content costs. He estimates that it will cost $1 billion for competitors to match Netflix's offerings.

HBO rolled out their online platform, HBO Go, last year. I use it, and it's great. Apparently, HBO subscribers that use HBO Go also wind up increasing their viewing time on the HBO broadcast networks. So, the online platform has also succeeded in its goal of retaining HBO subscribers.

Even though at any given time, HBO Go's selection of about 600 movies pales in comparison with the thousands found on Netflix, the real trump card up HBO's sleeve is their original programs. These programs are not available on any other streaming source.

For now, accessing HBO Go still requires an HBO subscription, which in turn requires a pay TV subscription. No word on when or if HBO will offer streaming access as a standalone option.

Reed Hastings stated that "HBO is becoming more Netflix-like and we're becoming more HBO-like.... They are not competing directly with us, but they can." Indeed, with Netflix ready to debut its own original drama series, House of Cards, next year, they are already beginning to parallel HBO's strategy of attracting and retaining subscribers by developing their own content.

And in turn, HBO has stated that they are working to add their HBO Go app to consoles and set top boxes. This potentially sets them up to go with standalone streaming subscriptions in the future, at which time they truly would be a potential competitor with Netflix.

[Smokey]

Reed Hastings stated that "HBO is becoming more Netflix-like and we're becoming more HBO-like.... They are not competing directly with us, but they can." Indeed, with Netflix ready to debut its own original drama series, House of Cards, next year, they are already beginning to parallel HBO's strategy of attracting and retaining subscribers by developing their own content.

I wish Netflix.instead of putting so much emphasis on original programming which many viewers may care or not care about, put their effort in improving their service.

While I was a virtual subscriber while back (coworker changed his password :mad2:), I could clearly see Netflix's service shortcomings. From not having a too much selection from TV shows and sitcoms, to mediocre picture quality from older films, there is alot of room for improvements.

If I was Reed Hastings, I would worry more about Dish/Blockbuster service than HBO+go. Especially if Dsh/Blockbuster decide to offer their streaming/mailing service independent of their subscriber service.

[Woochifer]

I wish Netflix.instead of putting so much emphasis on original programming which many viewers may care or not care about, put their effort in improving their service.

While I was a virtual subscriber while back (coworker changed his password :mad2:), I could clearly see Netflix's service shortcomings. From not having a too much selection from TV shows and sitcoms, to mediocre picture quality from older films, there is alot of room for improvements.

"Virtual subscriber"? Is that the same thing as a BitTorrent downloader being a "virtual purchaser"? :ihih:

Like it or not, improving Netflix's service is going to cost money, whether that entails moving up the release window or expanding the viewing selections or reencoding their lower quality videos. Hastings' decisions thus far have been to hold the line on pricing for the streaming subscribers, and that's where Netflix has faltered, since those rising content costs got redistributed to the DVD-by-mail subscribers.

Original programming is a very viable strategic choice, because it insulates Netflix from rising content costs and it retains subscribers by providing programs that cannot be found elsewhere. If House of Cards turns out to be a great series, then Netflix will pick up some subscribers as well.


If I was Reed Hastings, I would worry more about Dish/Blockbuster service than HBO+go. Especially if Dsh/Blockbuster decide to offer their streaming/mailing service independent of their subscriber service.

Hastings' point is that Dish/Blockbuster will also be impacted by high content costs. Once their current content deals come up for renewal with an inevitable price hike, they will need to make decisions about whether they will pass those costs along to subscribers, or pare back their content to keep their rates low, or if they will absorb those costs and try to make up for the revenue elsewhere.

HBO Go is a threat because it can easily become a standalone service, and HBO's stable of original programs differentiates them from other services. And if HBO decides to expand their library of online movies, then they compete much more directly with Netflix.

[Smokey]

Original programming is a very viable strategic choice, because it insulates Netflix from rising content costs and it retains subscribers by providing programs that cannot be found elsewhere. If House of Cards turns out to be a great series, then Netflix will pick up some subscribers as well.

I don't think original programmings will be the golden goose that will save the Netflix. With price of stamps going up next year and their renew contract with studios on the horizon-which rumur has it that Netflix have tp pay higher fees, I don't see any other way for Netflix to survive other than raising prices.

Just look at their stock worth in last six months and you see that Netflix stock share dropped from $300 to $75. Maybe they should consolidate with other sttreaming services.

http://admintell.napco.com/ee/images/uploads/hometch/Netflix_Stock_Dec_11.JPG

[Woochifer]

I don't think original programmings will be the golden goose that will save the Netflix. With price of stamps going up next year and their renew contract with studios on the horizon-which rumur has it that Netflix have tp pay higher fees, I don't see any other way for Netflix to survive other than raising prices.

Hastings' point is that the financial constraints that have squeezed Netflix's bottomline are going to affect direct competitors such as Dish/Blockbuster and Amazon as their content deals come up for renewal and as they try to expand their content libraries and move up the release window.

The cost of stamps is inconsequential -- it's all about the content costs. The only real protection from content cost increases is to develop your own.


Just look at their stock worth in last six months and you see that Netflix stock share dropped from $300 to $75. Maybe they should consolidate with other sttreaming services.

What point are you trying to make with the stock price? It was way overvalued to begin with, and hyped to death by the lazy tech press (which goes all gaga over anything tied into "new" media). Anyone who compared Netflix's subscriber growth and their content cost increases could've seen that their cost structure was unsustainable. This information was out there when Netflix's stock was booming. When I first posted on this topic back in April, Netflix's stock price was still over $200.

http://forums.audioreview.com/news-rumors/netflixs-business-model-isnt-sustainable-seeking-alpha-article-36434.html

These issues only came to roost when Netflix tried to shift the rising content costs over to their DVD-by-mail subscribers, and triggered a wave of subscription cancellations. The idiots in the tech press pointed at the price hikes as the source of Netflix's woes, but those price hikes were necessitated by the huge cost increases -- a subject that the tech press ignores because the writers are ideologically aligned with the notion that content should be "free." (Free like a virtual subscription, right?) Netflix's boneheaded move was underestimating how their DVD subscribers would react to having the costs shifted over to them.

I thought they should have gone to tiered pricing, basically offering up a higher price tier for newer releases. But, Netflix thought it more important to keep that $8/month price point in order to maintain growth with streaming subscriptions.

And what other partner would Netflix "consolidate" with? Aside from the subscriber base and a bunch of high priced content deals that potentially overlap with other competitors, what value added asset would Netflix bring to the deal? Their stock price would need to decline a lot more before anyone would consider absorbing/consolidating with them.

With competitors like Amazon and Dish/Blockbuster that have other revenue streams they can use to subsidize their streaming platform, Netflix's move toward original programming is one of the few ways that they can create value. I've been saying all along that the video streaming market could well wind up like premium cable channels.

With HBO, Showtime, and Starz, the broadcast rights for new releases are split up between different studios, precisely because purchasing the broadcast rights for each and every studio would be prohibitively expensive. Plus, certain channels are willing to pay extra to gain exclusive access to those rights. Netflix has already gotten that ball rolling on the streaming side when they recently paid Dreamworks for exclusive rights, and are about to let their rights to Sony and Disney movies lapse. I think that similar deals are on the horizon as Amazon and Dish/Blockbuster try to gain a foothold. With premium cable channels, you need to subscribe to all three of the major providers in order to watch all of the major studio movies. I see streaming video moving into a similar situation, where you have to have multiple subscriptions in order to watch the full range of studio movies.

Original programming is the hedge that all premium cable channels use to retain subscribers after they start paring down their studio movie offerings. HBO found that they gained far more subscribers by producing their own quality programs than they ever did when they still paid Paramount, Sony, Disney, and Fox for early broadcast rights.

Netflix is venturing into new territory with original programming, but it could very well be the only way that they can retain their streaming subscribers and protect themselves by not becoming overly reliant on the studios.

[Smokey]

And what other partner would Netflix "consolidate" with?

How about Hulo Plus or VUDU :)

I agree with you that eventually streaming newtworks will be like premium channels where content providers are spread out cross HBO, Showtime and Starz. But before that happen, some reordering have to happen such as streamers with weaker market share have to go under or get obsorb into companies with bigger pockets.

[Woochifer]

How about Hulo Plus or VUDU :)

Those channel occupy somewhat different niches. Three of the major studios have an ownership stake in Hulu, and they've been trying to pump up the asset value for an IPO. Netflix has little value to them as an acquisition play, and Netflix's cash-on-hand is way below what Hulu would be looking for in an acquisition. I doubt that Netflix is in any position to get deep into debt for an acquisition like this.

Vudu is owned by Walmart, and here too I don't see Netflix as a natural fit for them. Vudu's niche is with PPV rentals, and that has been an area where Walmart has shown more interest. Walmart prefers to simply sell digital files for purchase and PPV rentals. It's much simpler to negotiate a revenue split with the studios for individual transactions, than to get into the murkier area of blanket content fees for subscription services.

I suppose that Netflix could try and buy Vudu from Walmart, which bought them for $100 million last year. Vudu's service focuses on new releases, video purchases, and PPV, and those could potentially get added to Netflix's service. But, that would make their service infinitely more complex than any tiered subscription plan.


I agree with you that eventually streaming newtworks will be like premium channels where content providers are spread out cross HBO, Showtime and Starz. But before that happen, some reordering have to happen such as streamers with weaker market share have to go under or get obsorb into companies with bigger pockets.

I think the landscape has already been reordered. Netflix is really the only player left that does not have other revenue streams that it can tap into (unless you count their DVD-by-mail service separately). The only potential disruptions I see would be if Apple or Microsoft decide to enter the subscription video streaming fray. The content deals with the studios have gotten to a point that nobody can profitably operate a streaming service without paring out titles or making the rates a lot higher than they currently are.

Netflix has already tried carving out territory with its Dreamworks deal and I can see someone else making the same kind of exclusive deal with another studio. With that kind of commodification of studio content, Netflix's move to original programming is one of the few options they have to stand out from the other providers. I don't see Amazon producing their own programs, but Dish/Blockbuster might be a possibility.

Basically, second run studio movies have become little more than schedule filler for HBO, Showtime, and Starz. It's the original programs that have carried the day for them. Without shows like The Sopranos, Boardwalk Empire, Entourage, etc., HBO would never have grown to 28 million subscribers and maintained it. It's those programs that make HBO Go such a big concern for Netflix.

[Smokey]

Well Wooch, the rumor have started that Verizon might be interested in buying out Netflix. Just based on that rumor, Nteflix stock price went up 7% today.....

"The stock price for the streaming movie and TV services is currently soaring by as much as seven percent today. Why? It's all due to a new rumor that hit the Internet today that claims Verizon is interested in acquiring Netflix.

The rumors started today with a story on the subscription-based web site Dealreporter.com which cited unnamed sources. Details about this possible acquisition are scarce but even the hint of such a buyout was more than enough to get investors to buy some Netflix stock today. Neither Netflix nor Verizon have commented on this new rumor."

Netflix stock price rises thanks to Verizon buyout rumors - Neowin.net (http://www.neowin.net/news/netflix-stock-price-rises-thanks-to-verizon-buyout-rumors)