MediaFile

Could a Netflix-cable alliance spur HBO to go rogue?

A potential alliance between online video streaming company Netflix Inc <NFLX.O> and cable companies could spur cable television’s biggest premium player HBO to consider its options beyond the set-top box and go directly to customers on the Web.

But not anytime soon.

Analysts say Time Warner Inc’s  HBO, which has more than 28 million customers through its cable, satellite and phone partners, would be in no hurry to risk hurting their very profitable business based on a perceived threat from Netflix or any other newcomers. “Why fix it if it’s not broke,” said Standard & Poor’s analyst Tuna Amobi. “You’re virtually jeopardizing billions of dollars, it seems remote from our perspective.” People familiar with HBO executives’ thinking say this has been looked at and they ‘have done the math’ and are even more sceptical it makes sense. Yet the question, which is often asked, comes up again with the news that Netflix Chief Executive Reed Hastings has opened early talks with cable operators for a partnership.

If these Netflix talks come to fruition the alliance could start out as a billing partnership — with Netflix appearing as a line on cable customers’ bills. But the talks have also encompassed the possibility of Netflix shows one day being offered on-demand say people familiar with the talks. On a financial basis the two could not be more different. Netflix has warned investors it will likely turn in a loss this year, while HBO will likely grow its $1.5 billion in operating profits. In creative terms, Netflix is dipping its toe into producing original shows, while HBO is a record-breaking Emmy-award winner nearly every year. The concern for cable investors is that even though Netflix is still seen as a poor man’s HBO, with its package of older TV series and movies with few original shows, it will compete on a level playing field in the battle for customers’ time on a set-top box. Hastings frequently says Netflix will look more like HBO in the future. Last month, his company launched ‘Lilyhammer‘, the first of five new original series on its service and likely will look at more as it tries to give its customers reasons to stay on even as programming costs rise. But in a potential partnership with cable, Hastings focus will primarily be on pay television’s 100 million home distribution. “We believe distribution agreements with the cable providers could materially increase Netflix’s subscriber base in a relatively short period of time,” said Barclays Capital analyst Anthony DiClemente. “The question for Netflix, however, is how to reach greater scale without sacrificing all the economics to its cable partners.” Such a partnership could also lower acquisition costs and improve profitability he added. Even after guessing a fairly high overlap between Netflix’s 23 million subscribers and those homes. There would still be plenty of room for growth if Netflix is offered as some sort of discounted add-on deal to consumers. “Netflix is at a point where they are trying to get as much distribution as possible. However, I think Netflix needs the cable distributors more than vice versa,” Morningstar analyst Michael Corty said. Such a deal would not be a million miles away from something Comcast Corp <CMCSA.O> has already been announced the launch of Streampix, a Web-based extension of its on-demand programming with a wide range of older TV shows and movies. Perhaps the earliest example of how this could work is seen with the lastest version of Apple Inc’s <AAPL.O> Apple TV set-top box, which now allows users to sign up and get billed directly for Netflix through the box.

All in all,  HBO bosses might end up having to take heed from a character in their award-winning show ‘The Wire’ and  understand the “game done changed.”

Is Netflix the new cable guy?

Lisa Richwine

Sep 20, 2011 17:31 EDT

Customers tired of abuse from cable companies found a refuge in Netflix, the video rental service that won over Wall Street with a fast-growing and fiercely loyal stable of subscribers wowed by great customer service. The old cable narrative has always been about cable cowboys acting like typical old world monopolies: providing poor customer service (here’s a video of a Comcast technician having a nap on the job), terrible user experience and still having the nerve to raise prices every year. Cable companies have changed and evolved in the last decade but not enough for many customers. Netflix was supposed to be different — very different. It had a responsive customer service, a pleasant user experience and also fairly simple pricing. It was the opposite of cable. In no time at all users were telling their friends about Netflix. That might have all changed. Netflix has angered so many customers it was forced to lower its fourth-quarter subscriber projections, and CEO Reed Hastings offered an apology for the company’s handling of a recent price increase. Hastings acknowledged many subscribers “felt we lacked respect and humility” when the company announced in July it was raising the cost for DVD subscribers by as much as $6 a month, or 60 percent. He said he “messed up” and “slid into arrogance based upon past success.” Hastings did not, however, roll back the price increase. Many customers weren’t buying the apology, with negative reactions piling up on the Netflix blog. Plus, Hastings provoked more anger by moving the DVD business to a separate website from the streaming service. That will force customers of both services to visit two different sites.

Netflix CEO Reed Hastings on Xbox, Youtube, iPhone

Franklin Paul

Sep 21, 2009 15:18 EDT

We caught up with Netflix CEO Reed Hastings at the movie rental company’s event where it awarded a $1 million prize after a contest aimed at improving the accuracy of movie recommendations. He spoke about his hopes of working with Apple on the iPhone, the possibility that YouTube will beef up its movie service, and the future of the DVD.

Reuters: What will Netflix subscribers gain from the improvements in the recommendation system?

Hastings: It’s doubling the quality of our movie recommendation and that helps our subscribers get more enjoyment from movies. Because more often they love the movie they watch. More often the movies recommended will will turn out to be movies that you love. If you watch a couple of movies and don’t like many, you start to watch (sports and other programming). If every movie is incredible, you start to watch more.

Reuters: Netflix video streams on Microsoft’s Xbox Live system. What about the PS3 and Wii? Hastings: Eventually we want to be on all the game consoles, all the Blu-ray players, all the Internet TVs. So we are working in parallel with all of those efforts. Currently our Xbox deal is exclusive and we haven’t characterized it more than that.

Reuters: Any plans to work in partnership with Apple and the iPhone? Hastings: it’s something that’s likely to come over time. But nothing in the short term. (With) movie watching, we are not focused on mobile yet, but (instead) on the TV, on Blu-ray and on the video game consoles. We will get to mobile eventually, including the iPhone.

Reuters: What of Youtube’s potential movie service? Hastings: I think there will be a lot of competition in this market: Hulu, Apple, Amazon, Youtube, Blockbuster. Internet video is a huge opportunity. And there will be a lot of people engaged, and that is going to be great for the consumer. All of us are going to innovate and compete with each other and provide more and more value to the consumer.

from Fan Fare:

Note to Netflix: There’s a recession on

 Netflix Inc <NFLX.O> apparently didn't get the memo: there's a recession on.

The online DVD rental company is aiming for "at least" 12 percent net earnings growth in 2009 and will invest any "surplus profit" -- terms not heard much on Wall Street these days -- in growing its subscriber base and streaming content, Chief Executive Reed Hastings told investors on Monday.

The comments, made amid a storm of bad news from other U.S. media companies, came as the Los Gatos, California company posted a 45 percent rise in quarterly profit that even its own executives weren't expecting.

"Our October forecast of slowing growth turned out to be wrong," Netflix CFO Barry McCarthy admitted on a conference call with analysts. "We continue to see strong momentum in our business, quarter to date."

And then there was this: McCarthy said so many Netflix users are streaming content to their PCs and set-top boxes that they aren't ordering as many DVDs online. This equals fewer costs and more profits if this streaming thing takes off.

The relentlessly cheerful news continued: Netflix is still hiring! It is testing weekend shipping in some markets to speed service! It is within 0.4 percent of the 10 percent improvement it sought in its movie recommendation algorhythm!

On and on: More subscribers are upgrading to more costly plans than are cutting to cheaper plans! Free cash flow and gross subscriber additions hit a new record! "We will reach 10 million subscribers this quarter!" Hastings said.