Media

Why Netflix CEO Reed Hastings is suddenly warming up to cable & satellite TV providers

Netflix Chief Executive Reed Hastings is typically associated as one of the leading faces for the “cord cutting” movement, which is made up of people who canceled their expensive cable or satellite television subscriptions in favor of relying on streaming video services and web content. But earlier this week, that same face spoke of a happy coexistence between the two.

Blasphemy? Maybe to disgruntled cord cutters eager to see traditional TV service providers go the way of the newspaper, but for Hastings it’s just a business decision that could prove favorable to Netflix.

“It’s not in the short-term, but it’s in the natural direction for us in the long-term,” Hastings said Tuesday at a technology and media industry event, reports PaidContent. He explained that many traditional TV service providers would welcome more premium services on par with HBO, Cinemax, Starz, and Showtime. Hastings added that he believes those TV service providers would bid on bundling Netflix over HBO if given the choice.

Hastings’ statements may seem bold because HBO has original shows like True Blood, Boardwalk Empire, and (the greatest show ever created) Game of Thrones, which Netflix will never get its hands on. Meanwhile, those TV service providers can justify choosing HBO over Netflix right now because you can only watch HBO programming when it’s bundled with a monthly TV package. Enough people are willing to pay the monthly TV service cost plus the $30-$50 HBO bundled cost just to watch that content. Since Netflix is a standalone service, it doesn’t hold nearly the same value to the TV service providers.

Netflix is also facing a new threat from TV providers that are beginning to launch their own complimentary OnDemand streaming video services to retain existing customers and attract new ones. This strategy has proved successful for the third-biggest TV service provider Dish Network, which reported an increase in subscriber growth for Q4 2011 due largely to Blockbuster’s DVD-by-mail and streaming video rental service bundles. And Dish isn’t the only provider expanding its streaming service presence.

Last week, Comcast launched its Netflix-like Streampix service, which will be free for customers with bundled TV/Internet/phone service packages and $5 more a month for those with only a single service. Comcast Cable chief Neil Smit told investors Wednesday that Streampix “is a great complementary service…” that will “give customers no reason to go anywhere else.” And since Comcast is also the owner of NBCUniversal, it’ll have plenty of leverage in gaining content from others to make Streampix more competitive with Netflix.

Overall, TV service providers added 343,000 new subscribers during Q4 2011, with AT&T Uverse up 208,000, Verizon FiOS up 194,000, DirecTV up 125,000, and Dish up 22,000. Charter and Comcast reported the lowest subscriber losses for the quarter. So, it would appear that traditional TV service is far from dead — something Netflix’s Hastings is undoubtedly aware of.

With TV service providers having exclusive access to premium content from the likes of HBO as well as launching their own complementary streaming service, Netflix could slowly become much less appealing. So, it’s understandable for Hastings to start warming up to the idea of having Netflix become another bundled content add-on for traditional TV providers. And depending on the success of its own original programming, the future of Netflix might not just look more like a premium cable channel, it might actually become one — complete with higher fees and exclusive availability through a traditional TV service provider.

At the same time, if Netflix’s content strategy is successful while keeping monthly fees low, it could kill off some TV service providers and cause others to vastly improve what they offer their customers.

Right now it’s a waiting game, and Hastings isn’t committing to either side.


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