Fast Company

Netflix, the Cable Killer?

Netflix [NFLX] is considering a feature that would stream cable TV to its users. Wait a minute: wasn't Hulu supposed to be the Web's cable-killer?

The new feature gained exposure by way of a survey distributed to current Netflix subscribers. This non-question on the survey was the tip off: "Imagine Netflix gave you a way to instantly watch HBO original series and movies streamed from the Internet to your computer or TV."

HBO is the only cable content mentioned in the survey. The stipulations of the hypothetical plan are as follows: You'd still get the same number of DVDs each month, you'd still be able to stream content through your XBox, Blu-ray player, or Roku box, and you'd still be able to get HBO content on DVD. The up-charge: $10 a month.

It's that last part that makes the whole idea seem quixotic. Most people pay about $15 a month for their Netflix subscription, and therefore have access to a whole litany of HBO DVDs by mail. But they'd have to get something truly amazing for a 66% increase in subscription price, and that value would exist only in one thing: Up-to-date streaming episodes.

The survey doesn't indicate whether viewers could stream current HBO content--allowing viewers to catch up on last night's episode of Entourage--it simply shows a list of shows that would be a part of the plan. Most of the shows aren't airing anymore (The Sopranos, Sex and the City) and the ones that are have been on for years (Curb Your Enthusiasm, Flight of the Conchords). This suggests that users won't receive up-to-the-week content.

Streaming isn't new to Netflix. The company started streaming movies in 2007, with great success, despite an "instant" backlist that includes few popular titles. In last week's quarterly earnings call, Netflix CEO Reed Hastings revealed the results of internal research that suggests that the company's streaming movie options do, in fact, cannibalize DVD rentals. Of course, it's all the same to Netflix, which gets the subscription dollars each way. Perhaps what Hastings and crew should have learned from their own survey though, is how ready consumers are to abandon physical media and adopt streaming video.

There are hurdles, but none that can't be solved with volume. The more content that Netflix streams from major studios, they more it'll have to pay those studios--hence the $10 up-charge passed on to consumers. But if iTunes has proven anything to the digital media world, it's that volume creates leverage.

If Netflix could manage to serve up HBO or other premium content for consumers to buy a la carte, there would be enough defection from traditional cable to create a critical mass. Critical mass means power to haggle over revenue models. Before long, Reed Hastings would be able to call up the head of any major movie studio and scream at them the way Steve Jobs screams at the chairman of Sony Music. Wouldn't that be nice?

Hulu, the joint venture between NBC and Fox, has the Netflix problem from the opposite end of the spectrum: it's great with up-to-date streaming cable, and painfully light on streaming movies. The fact that Hulu can succeed in streaming TV and Neflix can succeed in streaming movies suggests that it's only a matter of time before one company or the other becomes ambidextrous enough to succeed at both.

To help them, here's a laundry list of wants I've compiled from friends, message boards, and other journalists. I'll call it the Netflix Customer Wish List.

Netflix Customer Wish List

Dear Netflix:

This is what the people want, and the surcharge they'd be willing to accept on top of their monthly subscription.

HBO On Demand. Just like On Demand you'd get from your cable company, this would include all HBO series that are airing the current month. Episodes would be available the day after airing on TV. This would also include most, if not all, the movies showing on HBO that month. $10 a month.

Showtime On Demand. Same as above. Showtime is widely regarded as leading HBO for original content these days, so offering one but not the other would be a missed opportunity. (What can I say; people love Dexter.) Also $10 a month.

Other stations. The message boards are alight with people saying they'd pay an extra $5 a month for Discovery, Sci-Fi, Spike, FX, Comedy Central and a morass of others. Oh, and no commercials. Maybe an ad-supported version of each channel could go for $2.50 a month.

No more Silverlight. Netflix's current player crashes like Amy Winehouse during the holidays. Please, Netflix: get a downloadable proprietary player, or better yet, port the fantastic Roku OS to work as an app on Mac and Windows. Sell the remote in USB version for a one-time $10 fee. Or find a Web video platform that works.

iPhone Integration. People love PhoneFlix, the off-brand Netflix queue manager for iPhone. Plenty of iPhone faithful would probably be willing to pay a one-time fee of $20 for an iPhone app that can stream TV episodes over 3G or feature films over Wi-Fi. Once the BlackBerry and Android stores are flourishing, release the app there, too.

If you've got a calculator handy, you may have noticed that all this amounts to a maximum of about $45 a month in surcharges, plus $30 in one-time fees, on top of your $15 Netflix subscription. What's your cable bill each month? $50? $75? If Netflix could offer your favorite TV channels commercial free, plus almost any of its 12,000 movies via Web or DVD, for the same price as your cable bill, wouldn't you switch?

What else should Netflix offer to make it a cable-killer? Comments welcome.

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2 Comments

  • Tom Newsom

    I think most of what is described above will happen. The cable/telco companies will fight it as well by putting download caps over their networks. Then the FCC will get involved. I think apple can unleash the floodgates with appleTV if all the itunes store video content can go subscription based like netflix. But the one big thing missing is LIVE TV. When can we watch live football or baseball games in HD through a service like this? I'm sure it's all coming though (Boxee).

  • Kevin Ohannessian

    Being equal in price to cable isn't enough. Netflix has to be less, else the public won't bite. And both the back catalog and offerings from the current season need to be substantial.