Will Netflix Displace HBO?
Netflix may well be part of a major shift in the television industry. According to the Washington Post the home of House of Cards may be coming to a cable box near you. Already available via its website and a variety of mobile and set top formats the company is having conversations with major cable distributors Comcast and Sudden Link about adding the service to their cable boxes. Such a move would be a crowning achievement for the service which eschewed releasing a branded set top box less than a decade ago in favor of becoming a partner with multiple devices. While in the process of developing a top secret dedicated box Netflix scrapped the idea in favor of building partnerships with multiple media devices. The company is the streaming industry leader at over 30 million subscribers.
Expanding their reach
The implications for Netflix are huge just based on the numbers. Despite the cord cutting trend especially among young adults, around 95 percent of American TV viewers utilize cable or satellite services to watch television. The current population of the US is about 315 million. While that number of course includes children and adults living in the same household this means that despite Netflix’s current subscription base there is potential for astronomical domestic growth. While sales in the set top box industry which includes Apple TV 13 million units sold and Roku 5 million sold are steady game systems actually account for at least half of Netflix consumption. The thing about the video game console industry is that many annalists believe that its sales are starting to flatten out. If all current Play Station 3 owners bought a new device this does nothing to build Netflix’s market share. But there are millions of potential Netflix customers who do not have a game system, set top box or internet connected blue ray player, but the numbers indicate that almost all of them have cable or satellite. While these talks have not reportedly involved Time Warner Cable such an arrangement with even just two of the major cable systems would boost Netflix’s Net Worth.
How will it work
If such an arrangement comes to fruition the interesting thing to look at will be how the financial arrangement will work. What incentive will cable companies get from Netflix in order to make the deal happen? There has never been a standalone company integrated in to a cable service provider as a partner. Will the cable companies get a cut of the profits from any new subscription authenticated through their hardware? Will Netflix pay a fee to be on the boxes like an advertising fee? Will cable companies pay Netflix a fee cents per each of its customers the way it does with a traditional channel like Nickelodeon or ESPN. The most profitable arrangement for Netflix may be for the cable boxes to work with Netflix in the same manner that set top boxes and other distribution platforms do. If Netflix is allowed to continue to collect its normal monthly fees from millions of new customers than it will build a war chest that could outstrip all of its competition.
How Could It Effect Netflix?
If it substantially increases its profits subscribers can likely look forward to more high end original programming and more exclusive content. Such an arrangement could give Netflix much more bargaining power than its competitors when the next big distribution contracts come up with film studios. Netflix already has deals lined up with EPIX, Disney, DreamWorks and many other distribution partners. Netflix could also become the landing place for the next Firefly, Terra Nova or Eureka when a traditional network gives up too early. It’s alternative approach to series production gives it leeway that traditional networks do not have and if people can access Netflix separately from a digital tier it may grow past HBO and Showtime as living room staples. Imagine how established players in the television industry would react if Netflix picks up a cancelled series and wins an Emmy. These could be very real possibilities. We will continue to monitor this story.