Netflix is a great American success story. Almost every day the trade press mentions their latest surge in subscriptions and what a threat that they are to other media entities. Netflix stock has quadrupled in the last year which is vastly better performance compared to all other media or tech companies. And, it is given much of the credit for taking down the Blockbuster franchise.
Lately, a lot of buzz has been made of the Netflix/Epix deal where Netflix will carry their movies and really juice up the Epix subscriber base. As a result, Netflix increasingly will be viewed as far stronger competitor to premium cable channels that are movie oriented. In a recent interview, Ted Sarankos, the chief content officer of Netflix, said “our product is more complimentary to cable than specifically competitive to any channel”. Perhaps he is being a bit disingenuous. Lots of us see Netflix as a modest but growing competitor to cable.
Anyone who has an internet enabled TV or is anywhere where they have access to an internet connection may watch films or many of their favorite shows on Netflix. Couple that with Hulu.com and a little help from You Tube and many young people are beginning to question the need for cable or satellite. Young adults strapped for funds question spending $100 a month for TV is a major expense. On line options have great appeal to some, particularly the upscale and well educated light viewers. The idea of 100,000 films plus many TV properties when you want and, on an unlimited basis, generate lots of appeal. Netflix also appeals to both the high tech and the no tech. Many people in their seventies cheerfully subscribe and get a new film every several days via their mailbox. The young exploit the streaming video options that Netflix offers.
Cable has an ace in the hole, however. Sports. If you like ESPN, NFL Channel, Fox Sports, or the Big Ten Network, there is no substitute for cable or satellite. But even there, a chink may appear in cable’s armor.
In the middle of researching this post, I sent out questions to many readers, friends, and some Media Realism panel members about Netflix. Something very interesting happened. Several readers under 30 wrote and told me that if ESPN would put all of their channels on streaming video, they would cancel cable and get by with Netflix, Hulu.com, You Tube and their ESPN subscription. When I wrote back, they basically said that approximately $100 a month was a lot to pay for cable and that they would be happy to shell out $15 to receive ESPN on a streaming subscription.
This is heady stuff. While it is clearly not going to happen, it makes you think about what an incredible job that ESPN has done in branding themselves. More than one young reader basically told me that, to them, ESPN WAS cable. The cable industry will always have challenges with churn. They have done a marvelous job in improving viewer options and providing a wide range of services to subscribers. But ESPN stands apart and alone from all other players. They will not likely offer a non-cable option to viewers as they could jeopardize their amazingly successful cable presence and their lucrative advertising revenues.
Leading cable players are aware of all that Netflix is doing. Several are launching Vutopia, which is a souped up movie service with far more choices than current offerings. Several other ideas are in the works. And, perhaps they will re-structure their tiers a bit as time goes on. But, Netflix is not the last challenge that they will face in the years to come. I think that cable is up to the challenge but things will get harder not easier for them over the intermediate term.
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