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Netflix, HBO and cable bypass

February 3, 2009 |  6:27 pm

Netflix_logo 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."

<p><p><p><p><p><p><p><p><p><p><p>Netfl</p></p></p></p></p></p></p></p></p></p></p>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.