Monday, February 2, 2009

Netflix verse Cable Television

It seems the high cost of cable television, combined with a recessionary economy, is the perfect recipe for innovation. Netflix has seen the future and recognizes that the DVD may support the business model today but must adapt as viewership patterns change. Streaming content provides the immediacy that DVD mail delivery cannot match. That domain has been where cable and satellite and now telcos have found their revenue growth. But the higher costs for HBO and Showtime, as well as for VOD buys may have finally opened up an opportunity for Netflix to expand into cable territory.

The article suggests that "Netflix be prepping a deal with HBO? The $9.99/month price tag sounds about right -- cable companies typically charge around $12-$13 a month for HBO service. Or could this be preparation for a deal between Netflix and the upcoming Viacom-MGM-Lions Gate 'Epix' Network, with Netflix asking its customers about "HBO" because Epix has no brand awareness yet?" I don't believe HBO would make this deal with Netflix and hurt their relationships with cable. HBO is currently owned by Time Warner, a major cable player. It seems much more likely that this partnership best serves Epix. Cable is crowded with HBO, Showtime, Starz, and Encore and all their multiplexed services competing for eyeballs. It may be too crowded for Epix to jump in this pool and make an impact. It makes far more sense for Epix to partner with Netflix to stream over their devices. That would be great news for Roku , Blu-ray, Tivo, X-box, and other devices that receive Netflix streams. And at a lower price point, cable subscribers unhappy with these current relationships may simply downgrade to not only save money but get a potentially larger volume of movies to choose.

Cable must begin to see Netflix as a real competitive threat. One that can be overcome, but requiring cable to rethink its set top box.

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