Netflix, HBO and cable bypass

The emergence of Hulu and other free sources of TV online has prompted some breathless talk about consumers dumping their cable subscriptions in favor of Internet-connected TVs. That's a nice sentiment, but cable and satellite services still have some features the streaming TV sites don't. One is high-definition programming in abundance, although that gap is closing thanks to technologies from the likes of Move Networks and Vusion. Another advantage for cable and satellite is premium channels such as HBO and Showtime, which have kept such popular series as "The Sopranos" and "Dexter" off the free sites in favor of selling episodes on DVD or iTunes.

Having said that, I still think we'll see a broadband substitute emerge for cable. It just won't be free. In fact, it may be priced a bit like cable, with tiers of premium programming offered on top of what's available without charge.

The first hints of this approach are coming from Netflix, the online DVD rental company. Two years ago, Netflix started letting subscribers stream selected movies and TV shows to their PCs or specially equipped TVs. There's no extra fee for this service, but only about one-eighth of the 100,000 titles in Netflix's library are available for streaming. That's because Netflix can't stream a movie or TV program without obtaining the copyright owner's permission, and in many cases the rights have already been locked up by HBO or Showtime.

Last week, the blog Hacking Netflix reported that Netflix was testing the waters for a potential deal with HBO. The site had a copy of a survey that Netflix sent to subscribers, asking whether they'd be willing to pay an additional $9.99 a month for the chance to stream HBO's original programming and movies. What do you know -- that's just about the same price people pay to add HBO to their cable service! Netflix spokesman Steve Swasey wouldn't talk about the survey, other than to say that his employer "polls members all the time about pricing, content, UI [user interface], the site, delivery, shipping and more." He added, "We also routinely talk with the studios, but we don't comment on those discussions."

HBO spokeswoman Laura Young said, "We have not had any discussions with Netflix about this," so it's fair to assume that Netflix was just testing the waters. HBO may also be less eager to take Netflix's money than Comcast's, even if the splits are better: The company derives the lion's share of its revenue from cable and satellite operators, so it risks undermining those fees if it gives aid and comfort to one of their competitors. Yes, HBO put "In Treatment" on YouTube when the series was trying to build an audience, but that effort was clearly aimed at driving viewers back to, not away from, cable and satellite.

Nevertheless, it makes a lot of sense for HBO to support as many distribution outlets as possible, even if it's irrevocably wedded to a subscription model. With audiences fragmenting and eyeballs moving away from TV sets, HBO can't afford to glue itself to a 20th century distribution platform. Nor can Showtime or any other cable network. That's why Starz has already done a deal with Netflix to provide its content as part of the free streaming service, which is easier for Starz to do because it doesn't buy original programming a la HBO and Showtime. It seems unlikely that Netflix subscribers would pay for multiple tiers of extra programming, but they may very well go for one high-quality add-on. In other words, there's a first-mover advantage here. So, who's going to take the leap first?

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Comments

[alex]

I'm one of those people that have dumped cable TV. I got fed up with Comcast constantly increasing their rates. I had a spare PC lying around so I hooked up it up to my flat screen TV. Viola! Instant entertainment. I now get my local stations free through my digital antenna. I do pay Netflix less than $10/month for DVDs and for the use of their streaming programming. I highly recommending dumping cable. Now, I pay less than $10 instead of $125/month. Also, because I don't have hundreds of channels, I don't end up watching programming that I really don't care about. Less TV = more time for reading, exercising, and living life.

[derek]

Commercials suck and on most cable and satellite subscriptions after midngith or 1 am it all infomercials. Theres alot of good shows out there and way to many ads considering your paying for those informercials its not worth it. http://Hulu.com is good only if you live in the US bud with so many ads your almost trading one evil for another. A happy medium is low subscription sites that have complete seasons ad free like http://3click.tv because TV does produce some good high demand shows expecially the HBO and Showtime series but sorry, getting ripped off at the cable or the dish just isnt worth it.

[RonSalon]

I dumped cable too. I am so glad I did. If I could pay for the four channels I wanted I would, but that point hasn't come...yet. As soon as it happens I would gladly pay for them. I find it ridiculous that we can send a rover to Mars, which can rip up a rock, grind it down, and then analyze it, but we can't have ala carte TV. I don't want five ESPN's or pink haired ladies spouting off about thier god. Cable companies need to wise up or more people are going to go this route especially with the economy the way it is.

[Eric Becker]

Jon, perhaps your underlying point re: original programming is that HBO and Showtime do not want to undercut the DVD and syndication businesses for the original programming that they produce?

Pardon if I am perhaps taking your words too literally, but my understanding is that it's not necessarily any "easier" or more difficult for them to follow the steps we have taken in the broadband space (movies vs. originals) so long as the rights are cleared. It's ultimately a business decision. In fact, the hypothesis is that it should be even "easier" with original programming because the underlying assumption is that as the content owner and originator (in this case HBO or SHO) has all of its broadband rights cleared (including music rights) up front.

On the subject of original programming. This is a new era for Starz. We just completed the first season of "Crash," our new comedy series "Party Down" (from Rob Thomas of "Veronica Mars" fame) is set to debut, and a big action series "Spartacus" (from Sam Raimi of "Spider-Man" fame) is set for later this year. Anyway...while very true that even for the Starz of 2009 our original programming levels do not match those of HBO or Showtime relative to the number of feature film titles that we offer, please note the big steps into originals we have taken. Originals are an excellent complement to the leadership position that we have secured in offering great movie programming.

Lastly, while indeed Netflix as one of our Starz Play affiliates has chosen to offer Starz Play (including the 2,500 movie and video selections, the Starz East Coast feed, and more) for all of its unlimited plans for no incremental fee versus what they offered consumers prior to our deal with them, note that the service is not "free." We are indeed getting compensated by Netflix for the rights to the service that we have licensed to them as one of our affiliates. Netflix, as the retailer, gets to set the price point, versus say Verizon who chooses to retail Starz Play incrementally for $5.99/month.

Thanks!

Eric W. Becker
Executive Director of Corporate Communications
Starz Entertainment and Starz Digital Media
8900 Liberty Circle
Englewood, CO 80112
(720) 852-4065 (direct)
(720) 852-8555 (fax)
(303) 638-3469 (cell)
(720) 852-7700 (switchboard)
eric.becker@starz.com
www.starz.com