Is Netflix the future, or will we suffer the wrath of cable companies?

This blog, I assure you, presents absolutely no bias

Netflix has certainly proven itself to be quite the versatile and progressive business in its mere decade of existence. Not only has it all but completely shut down the brick and mortar video rental chains Blockbuster Video and Hollywood Video, but it has firmly entrenched itself among the most popular streaming video content providers online. It seems the company has recently become a threat to cable television and television networks because of its offering easy access to video content.

This New York Times article discusses Netflix’ deal with the Starz network, which many suggest was damaging to the latter company because they believe the company made far less through streaming than they would have otherwise received. Of course, this is going on the assumption that the people who streamed the content through Netflix were not people who also had cable television. It is hard to tell, but maybe the truth is that maybe Netflix will have to pay the network far more when the deal is up for renewal.

Jeffrey Bewkes of Time Warner appears to be starting a small rally cry for cable content providers against Netflix. He says that Netflix is providing the content providers with less than they would otherwise receive from cable providers. For the time being, this is true. Netflix does not have the same financial clout that a company like Time Warner has. Or, to qualify that last statement, Netflix does not currently have the same financial clout that a company like Time Warner has. Netflix has grown quickly in 11 years, and it can be assumed that it will grow by leaps and bounds in the next 11.

Executives at cable companies like Time Warner and Comcast probably sweat every time someone discusses the growth of Netflix. Until recently they had all of the power in deciding the availability of content. The tiered content packaging sales practiced by the cable companies have left people frustrated for years. To watch one or two niche channels or even acquire a premium/movie channel, one has to upgrade to a cable package that includes 100+ more channels and cost $240+ more annually. It does not sound reasonable when an individual just wants to see a few more things one TV.

Because of those practices, lately there has been a consumer movement referred to as cord cutting. The ready availability of content both on DVD and online means people will not hurt much when detached from the cable companies. Local stations can still be picked up over the air even in the digital age, so the news is still available for those who want it. Cable companies are currently bleeding subscribers because they are not offering content in the form that viewers desire. It must be admitted, though, that including DVRs has been a step in the right direction because viewers want to time shift their content rather than be slaves to TV schedules.

This is a map of presumed cord cutting, offered by a source that is likely biased. Regardless, click the map for a larger view.

What Netflix offers, especially when it streams content offered by a cable network, is something that has long been desired by cable subscribers – a la carte television. Being able to conveniently pick and view content on a whim is what any major consumer wants. The big cable companies have always opposed this because there is money to be made in fluff. Not everyone wants it, but there is money to be made in the Golf Channel’s (or insert the name of any channel you find far from interesting) being included in a cable package. Netflix potentially offers the shows and movies viewers want without feeling like they are paying for the needless content – although technically they are. At least the prices are more reasonable.

And this is where it all comes together. In Bewkes’ urging cable companies to avoid Netflix and pointing out the deal with Starz, he is attempting to draw attention to the wallets of all those involved. Netflix may be able to sign another deal with Starz as well as a host of other networks, but each will ask for more money than was exchanged in the original Starz deal. This affects the consumer because either the content will not be made available or it will force another hike in Netflix’ prices. Ultimately consumers may have to pick their poison. If it were up to the cord cutters, Netflix and anything similar would receive full support.

How would you like to see your content delivered? Would you prefer a la carte video content, or do you prefer the variety offered by various cable packages?

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About Gospel X

I am a major mediaphile as well as a social researcher. My ultimate belief is that the media can be used to teach children prosocial behaviors and teach adults how to access paradigms. And I think that Mega Man is an amazing example of proteanism. Add me on Google : https://plus.google.com/u/0/113795848855477334599

Posted on December 20, 2010, in business, digital distribution, innovation, movies, television and tagged , , , , . Bookmark the permalink. 4 Comments.

  1. I’m a big fan of the a la carte option since 1) I don’t watch half of what’s actually on television these days and 2) I can enjoy copious amounts of a specific show…like Dexter 🙂

    I love you, Netflix Instant.

  2. Two things.

    First on cutting cable. I’ve been without cable almost three years now, closing in on approximately $2000 worth of aggregate savings. What seemed shrewed now seems obvious. Couldn’t be happier with the decision. I would be willing to pay for a la carte channels, but understand how that is probably never going to happen.

    As for Starz and Time Warner. I’m not sure that Bewkes understands how disruptive the internet is going to be on cable market. Netflix already had access to most of the content Starz did i.e first run movies. So, perhaps Bewkes is just trying to support a large portion of Time Warner’s business, but that is not a great long term strategy. The internet is providing a very, very cheap distribution network, making it easier for content providers (Starz has some original content, notably “Party Down”) to distribute their wares. This is probably why Netflix wanted Starz, and its the only strong bargaining chip Starz had in negotiations.

    Content is king. This is why Comcast bought NBC — they didn’t want to limit themselves to being “the pipes” that bring content to the household. Look for Netflix to do more this down the road too. Looking at the content produced by Time Warner, I’d be worried too. HBO and Adult Swim (Cartoon Network) are the content I’d be willing to pay for [http://en.wikipedia.org/wiki/List_of_assets_owned_by_Time_Warner]. Of course, others are willing to watch the Golf network, but how many are willing to pay for it? And a better question is at what price? My guess is there are not enough to keep up a full time channel they way Time Warner operates. It’s probably amortized by Time Warner’s complete cable package.

    But this is where the magic of the internet pays off. There is a market out there… some entrepreneur will probably find a way to create or aggregate Golf content. And throw it together online.

    I foresee eventually, most television channels as a broadcast mechanism will die. Everything will be on-demand for two reasons. I want my TV shows on my time. TiVo and DVRs were the first step here, but with Hulu, Netflix, etc were the next step. As most cable cutter’s have realized, I can have damn near everything when I want it. TiVo will be another victim unless it innovates itself into another market [as a side note, I think they *might* do this. They had some neat ideas for revenue related to advertising].

    The second reason I believe channels as a broadcast mechanism will die is its too expensive to maintain separate pipes for network, television and telephones. Why maintain all of these at great cost when we could switch to one packet based network, providing greater bandwidth and providing all the services on top of that lower-level medium.

    • Corey, I absolutely agree with you. That’s what people like Bewkes are fearing will eventually happen before Time Warner and the other companies find a way to fully capitalize on it. In thinking about this and the result of the in-name-only Net Neutrality bill, I foresee the cable companies wanting to move toward the idea of a more integrated network but with the same billing practices and overall outlook to maximize their possible profits. The hurdle that needs to be overcome before we see something reasonable isn’t reason or the outlook of freedom of content – it’s the money-driven motivation of the cable corporations.

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