Netflix streaming isn’t a substitute for subscription TV
A number of media pundits like Cecilia Kang are all over this notion that Netflix is somehow the biggest threat to the cable and telephone companies when the facts simply don’t support that theory, at least not for the foreseeable future. That’s because Netflix does not provide a substitutable service for Multichannel Video Programming Distributors (MVPD) services like AT&T U-verse, Verison FiOS, Cable TV, or satellite because it doesn’t provide live or first-run television programming. Netflix isn’t even a substitute for the theater or DVD rental outlets like Redbox because Netflix mainly goes after the leftover content that didn’t sell during the theater release window and the DVD rental window.
Cable and Telco are the biggest threats to each other in terms of subscription TV services. People who buy Netflix buy it in addition to their cable or Telco TV service and the few people who only use Netflix tend to be people who weren’t paying for subscription TV to begin with. Netflix not competing with subscription TV services is actually a good thing because it means that Netflix has carved out a very important niche that it dominates. In light of this and other facts, it’s unfortunate that Kang decided to play up the Telecoms are trying to kill Netflix conspiracy angle. Kang quoted Consumer Union’s Parul Desai’s unsubstantiated paranoia.
“There are many incentives to create hurdles for online video firms like Netflix,” said Parul Desai, policy counsel for Consumers Union, parent of Consumer Reports magazine. “They are going up against powerful media and Internet service providers who are trying to come up with their own Internet video strategies and could limit access to content and access to their consumers.”
Charges are thrown out there that Netflix is being attacked by the broadband providers, but nothing specific is mentioned. The broadband providers actually provide a digital delivery service for pennies on the dollar compared to the US Postal Service and Netflix’s Chief Content Officer even cites this fact that Netflix stands to save $700 million in postage to calm investor fears of rising content licensing fees.
The one specific threat that Kang mentions in her article is that Netflix is hiring lobbyists to combat metered Internet pricing.
“In January, Netflix responded by hiring its first Washington lobbyist, Michael Drobac. He has told lawmakers and Federal Communications Commission officials that allowing Internet service providers to charge based on how much bandwidth people use is unfair and poses risks to online video services.”
But Netflix is hypocritical here because they are the ones lobbying the FCC to have consumers to carry the entire burden of higher infrastructure costs. Netflix wants the government to prohibit broadband providers from charging Netflix or its distribution partners like Level 3 for thousands of gigabits of private peering connectivity, and Level 3 publicly states:
“Comcast can either lower the cap or charge more for higher usage as many other broadband access providers have already done”
Not only is this hypocritical, it also jeopardizes the cheap delivery mechanism that is enabling Netflix to save hundreds of millions of dollars on DVD postage. It’s not clear what Netflix has to gain by siding with Level 3, but what they stand to lose is very clear.
George,
I don’t know… I think that Netflix does represent one of the most likely threats to the MVPD provider (which are the cable and telco’s) because of what it is fundamentally… Only what you want when you want it, and nothing more. The MVPD fact of channel bundling has always been one of those things that isn’t talked about in public and is normally taken as a “that’s the way it is” setup by end users but if you stop to think about it why do I have to sign up for the discovery channel if all I want is ESPN (or vice versa).
Personally I have cut the cord and am not interested in having it again unless I can choose to pick what I want to watch without having to pay for all the extra crap I don’t. IPTV represents the future to me and it will be interesting to see what happens over the next few years as the game changes and IP delivered shows start appearing.
My dream? I have a choice of signing up for all of showtime, HBO and others for X dollars a month and it be available only when broadcast or I’ll sign up for a single season of my favorite show for $1.99 (or $2.99 etc.) in an almost “app store” (or podcast) like fashion. It will then become available on my DVR in the cloud (something perhaps like the UbuntuOne music service) where I can download it to my phone, my computer or my internet enabled TV. I watch it when I want, how I want, where I want. And if I’m not at home? I can log into my cloud DVR from the internet and stream it to whatever device I’m on at the time, whether that be a hotel room as I’m on travel or my relatives house while I’m home for the holidays. The content makers I like get paid for the value they provide and I get to have control of the media I purchase. I think we both agree that technically this is very possible.
But that is my dreams. What is more likely to happen is what we are seeing with the app stores today (with other vertical integration such as payment systems). Apples, Google’s, Verizon’s even Amazons now… The market is going to flood with copycats all trying to scoop online content delivery into their offerings and it’s going to get messy and ugly. I wouldn’t be surprised if Facebook didn’t get in on it somehow.
I personally would like to see fewer monolithic players trying to do everything (aka Comcast-NBCU, TWC, etc.) and more companies trying to do the best they can with what their good at (I want my ISP to be an ISP only, etc.) …but then again that’s my dreams.
Very Respectfully,
Garrett Heaton
It’s not Netflix. It’s STB’s with tons of options. Honestly I think out of all of them the Xbox 360 and Playstation 3 are becoming the biggest threat to subscription television because you are seeing Hulu+, Netflix, VuDu, and ESPN3 plus the Xbox Live and Playstation Network offerings of content.
It’s a start, but ultimately George is correct. It doesn’t replace everything. It sort of gives you most of mainstream tv, you get some sports, and you get some movies. Not to mention that some of the best content that you often find in the subscription model is not content you planned to watch, it’s stuff you come across while flipping through your guide.
Garrett, consumers say they want a la carte options but have largely voted just the opposite with their money. A la carte pricing of the type you stated costs much more than even premium MVPD services if you watch a few episodes a day at $2 a show. Three $2 shows a day on average and we’re up to $180 a month and heavy MVPD users watch far more than that.
As for HBO, what makes you think it’s going to cost less than $10-$15 per month on top of Netflix versus being on top of the MVPD bill from the cable or Telco?
Nick,
That is true, some of the best shows I’ve found were on accident and yes, good point, new set top boxes are probably a bigger threat than just Netflix.
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