Netflix now bigger than HBO
qz.com
qz.com
Shudder.
Is there anyone on hn who hasn't checked out Game of thrones?
IMHO, looks like didn't.
I also haven't read the books.
Somehow I am not able to make HBOGo work on my Mac with all the tweaking and hence I pirate it(Sad :'( )
I wish they had an app that would just make it work magically - something like PnP!
then they certainly have a hand to play
Right now, Netflix's original programming track record is really spotty aside from House of Cards -- which is absolutely HBO quality and would likely have been an HBO show if Netflix hadn't outbid by such an absurd amount (granted it was the right strategy to make but I get why HBO didn't match)).
Aside from Arrested Development, however, nothing on their current slate looks like it will rise above Starz quality. And that's a problem if you expect people to consistently pay $8 a month.
See, what happens with Netflix, HBO, Showtime -- even regular cable -- is that subscriber churn happens. It's often cyclical. One of the reasons HBO staggers its release schedule for its programming is to try to get people to pay year-round (it's also why they introduced HBO Go -- in essence they gave up their home video revenue, or greatly limited it -- in exchange for keeping people subscribed year-round because of all the content they could get anytime).
Netflix's own figures show that they can jump and fall by the millions per quarter.
If you want people to continue to subscribe every month -- and not cancel after they see the show they like -- you have to have a constant swath of new and original programming.
I'd literally pay 3-4x as much for the non-original content. Again, that is only 6-16hrs of content Netflix has to serve up, that is only remotely interesting. The convenience and paying for the business model I believe in does the rest.
If HBO offered its service unencumbered of cable subscriptions, I'd still find it less valuable than Netflix.
That's a brilliant pricing structure; one I never pay any attention to. They easily could get more out of me a month for the amount of value I get from it (and likely even more than that number if the quality of their unique content continues to shine).
The originally programming is meant to pull in new subs and keep current subs engaged at higher levels so that they are less likely to churn. If you want to cancel your subscription for whatever reason already, it may not matter if they have 100 original series, you'll still cancel.
It's all about increasing the lifetime value of each subscriber. One way is to keep them longer (e.g. reduce churn). The other is to upsell them to higher pricing tiers. We're not seeing that with the original content (yet), but what if Netflix managed to (for sake of discussion) get the rights to Firefly and made another season of it but only for people who signed up for a new "Premium Streaming" package. You'd see some complaints, but a slew of "Shut up and take my money" memes. I don't know if they'll ever do this, but it's the next logical step once they've established the original content as desirable.
I only use it a couple times a month, I find it hard to actually browse their catalog, but they do an okay job of suggestions. And I can usually find something interesting in a pinch. Most of all, I'm paying to keep them around, because of how good the experience was when I did cancel.
Contrast this to XM, when I had 3 radios, and only wanted to cancel one. Took three phone calls, with hold times of over 40 min each, to be mysteriously disconnected when they couldn't convince me to keep service on a radio in a car I no longer had. After that, I cancelled the whole thing.
HBO has a quality seal of approval that has taken 15 years to cultivate. That can't be bought or earned overnight from one show. HBO consistently gets more Emmy nominations than every other network -- once Netflix is able to counter in that area, then it will happen.
Still, getting over the hump can happen. Look at AMC. Before Mad Men and The Walking Dead, they were best known for the terrible original series Remember WENN (don't ask, it sucked and I was in 7th grade when it premiered). Now it's easily one of the best networks on TV. Same for FX. Justified, Always Sunny, Sons of Anarchy, Archer, The Americans are all fantastic and this was a brand that was best-known for playing Fox reruns until about 7 years ago.
EDIT: I think my post addresses filmgirlcw's point well. Yes, it took 15 years for HBO to cultivate their seal of approval. But that is partially because cultivating a seal of approval required HBO to build its subscription base, which takes time. Netflix already has its subscription base, so it only needs to convince that subscription base to watch its content. It can do that by 1) advertising prominently within Netflix (near zero cost), and 2) producing quality content, so that once people watch the first episode of a Netflix show, they want to watch the second. Therefore, the highest cost to Netflix is that of producing quality content. But as long as they can do that, they will succeed because they already have the audience. Of course, they do need to recognize that they only have a small window of opportunity to show that they can, in fact, produce quality content -- or else they will lose the willingness of their subscriber base to watch their originals.
I'm also not sure if you understand that HBO has has subscribers in the tens of millions for decades. That's my point, they've cultivated this premium brand but have been a part of many customers lives for years. I'm 30 and I've never NOT had HBO.
My parents have had HBO literally since 1972. 41 years. I realize that's an extreme example but the network has a strong brand.
HBO and Netflix aren't in a zero sum game; both can succeed. It's just that as Netflix moves into HBO's pool, it's going to have to face the issues HBO already faxed, whereas HBO won't have as hard of a time shifting to over the top once the business model makes sense.
Scale -- HBO is significantly larger when it comes to production capacity. HBO can also have far more shows in production at one time. That scale is partially a product of capital, but also one of point number 2:
Experience -- This one can't be underestimated. HBO first started toying around with original content and series in the early 1990s but it wasn't until Larry Sanders that the show really started to resonate beyond the periphery. Even then, the established TV world didn't start to pay serious attention to HBO until the late 1990s, when you had a swath of hits become bonafide cultural phenomenons (Sex and the City and The Sopranos were hits of a massive global scale beyond anything that cable, let alone premium cable, had seen up to that point).
Netflix has had to start from ground zero. They are essentially right now where HBO was in 1997, when HBO started to shift from acquiring content to paying for original content (Larry Sanders) to making the content in-house (Oz).
Now, granted the current world moves faster -- and Netflix is already potentially approaching the 1997 spot in just two and a half years with this strategy -- BUT content is also now more expensive (The Sopranos and Sex and the City were not $100m shows for a total of 26 episodes like House of Cards is), competition is fiercer than ever and the overall economics of television are not as advantageous as they once were.
I would also say that a third advantage is cable. Yes, cable is an advantage. Why? Because cable often serves as free (or nearly free) advertisements for HBO shows and the bundling of HBO for 3 months free or half-off or whatever is a huge driver in subscribers. Now, Netflix can replicate this, but they'll need to do it at a price and obviously they'll need to assess if giving the cable companies 30% of their monthly revenue is worth the advantages of being bundled.
None of this is insurmountable, but just as starting a movie studio from scratch is hard -- pivoting from a pure distributor into an original content creator/distributor is hard too.
These premiere shows had a much different feel than normal "big 3" network TV shows. They tend to be much more serial, with story arcs that go for whole seasons or even longer. They also tend to have much shorter seasons (generally around 8 to 12 episodes). This serial style really lends itself well to in-depth story telling and the shorter seasons means more attention is spent on each episode (since they don't have to constantly churn out new episodes all year).
An interesting technique that many of the shows use is to base themselves off a book series but make the entire 10 to 12 episode season cover a single book. Dexter, Game of Thrones, and True Blood all seems to do this with reasonable success. It allows them to get much more detailed than a 2 hour movie based on a book could possibly be.
The problem is, that strategy takes money. And that $8 a month per household is probably half of what HBO is getting per household for its 29m subscribers (plus what they get from home video, licensing and international).
Netflix has pivoted from trying to be cable to trying to be HBO. That's all well and good but let's not try to spin this as how cord-cutting is "winning." It's not. If cord-cutting was winning, Netflix would have had more subscribers than HBO quarters ago. Instead, Netflix's next big strategy is to get bundled WITH cable providers (which incidentally is a smart approach and could be what really lets Netflix's subscriber base balloon).
HBO, Netflix and Showtime require original content to really push the needle. HBO has an advantage of having spent the last 20 years (since Larry Sanders, really) cultivating the best showrunners and writing talent that have in turn, brought in some of the best programming in the history of the medium.
Moreover, HBO has a financial advantage in that they make most of their original series in-house. Netflix does it two ways. They fund series outright like House of Cards and Arrested Development (but to be clear, 20th Century Fox still produced and owns the video and syndication rights to AD) or they acquire the first-run rights (Lillyhammer, Tom Fontana's Borgia). Even in the cases where they do fund the development, a secondary production company usually still does everything -- it's not in-house. HBO, by virtue of being a subsidiary (and the most profitable subsidiary) of Time Warner, has access to Warner Bros. Television, which cuts down on a lot ancillary costs before it comes time for distribution.
It'll be interesting to see if Netflix can afford to acquire or do full-contracts with certain production companies and creator shingles to get rights to future projects. Alan Ball has a longstanding deal with HBO and David Milch has a semi-exclusive with them too.
TL;DR This is great for Netflix, but all it really does is make them a real contender as a premium content network. It doesn't impact HBO's current economics or have any impact on the realities of running a content business. Which is basically that good shit is expensive.
Video on demand (with no ads!) is a killer feature for me.
Not to mention it's way cheaper than local cable - I'm paying for three subscriptions (mine, my parents' and my uncles') for less than one month of basic cable.
The day they can simulate cable's mindless zapping (some sort of preprogrammed channels), and get sports on board (I'm an NBA fan, and I'd like to watch Champions' League football too)
I had a subscription to Hulu Plus, and it pissed me off that I paid a subscription fee and had annoying commercials.
Edit: That being said, I'd probably discontinue Netflix if it weren't for Arrested Development and, to a lesser extend, House of Cards
I wish HBO would offer a similar service to non-US citizens
Quick and dirty numbers (on just the domestic streaming).
At 30M subs, run rate revenue is approximately $3B. They had about $2B in content commitments. Delivery costs (i.e. bandwidth) runs about 20% of revenue. So on their $3B, $600M goes to delivery, $2B goes to content, and they have $400M-ish in profits.
NFLX is difficult to value because it's growing so fast and the content cost is a moving target. If NFLX can keep content costs around $2B, then every incremental customer is 80% profit. Every 1M subs they add, is $100M in revenue and $80M in profit (capitalize that at 10x and you're adding $800M in valuation ... keep in mind they added 2M domestic subs in the last 3 months). Some people argue that content providers will demand higher fees as NFLX increases subscribers. I'm not convinced. They walked away from Starz and they cut a deal with Disney that doesn't look any more expensive than what they were paying previously. And they're also building a library of owned content.
It's definitely one of the most interesting stories to watch.
I have hope that they will do this, but looking at the history it's far from certain.
https://itunes.apple.com/us/app/showtime-anytime/id484232467...
I know, I know, I don't get it either.
It's not hard to understand, they're not idiots at HBO, they crunched the numbers and figured out how to get the most money.
In the future, there will be a tipping point when enough people have tired of "cable teevee" that the numbers will fall the other way, and when that happens, they'll leave the cable companies behind and push as hard as they can on HBO Go globally. They're already testing the waters and rolling out the infrastructure for it.
You and HBO are assuming that the number of people who would join HBO Go without a cable subscription isn't going to be greater than the number of people who would drop cable to just get HBO Go. It's just a guess.
A cable subscriber is worth a lot more than an HBO Go subscriber, since they get kickbacks from the cable companies, they are cheaper to acquire, since they get a lot of free advertising through the cable companies, and they are less likely to cancel, since it's harder to cancel an entire cable package.
So it's not a 1:1 relationship between cable customers and HBO Go customers. They need to acquire several Go customers to make up for each lost cable customer. But cable is shrinking, and streaming is growing, and at some point the scales will tip. However, they have to be damn sure that it has tipped, and that they can sustain their current revenues, so they will probably be a bit cautious and conservative, and let their cable-only deal stick around a bit longer. This might not be what you want, but such is life.
(Or you could move to any Nordic country and enjoy HBO Nordic, which is HBO Go, but without the cable subscription requirement.)
HBO is owned by Time Warner.
Netflix really needs to implement an offline mode for its mobile apps.
The vast majority of the times I'm watching something on my phone, I don't have a WiFi connection or the connection is too slow to stream an HD video (like on a plane, at the gym, in a car, etc.)
I'd love to be able to download something at my home and watch it in offline mode later. Both Rdio and Spotify do this for music. Why doesn't any video services do it? Are you listening Netflix?
</rant>
Licensing issues.
As long as you can only watch it from within their app (so they can keep stats), it shouldn't matter whether it's online or offline.
However, it is the same in that if you're ever wondering why a music or video content app doesn't do something, the answer is always "licensing."
When content is licensed, there are different licenses that are distributed based on who pays and what the service is:
* First-run -- you get to broadcast it first * Syndication -- you get to broadcast second * Digital -- you can also show the product on a digital platform (this was how Netflix was able to do their loophole with Starz back in the day, Starz sold the digital license and streaming license to Netflix because the content owners hadn't specified that such a license was unable to be resold or relicensed -- that' since changed and now it's an extra fee if you want to do that like EPIX does) * Digital streaming -- can be streamed but not watched offline * Rental -- traditionally DVD/Blu-ray * Digital rental -- iTunes, Vudu, Amazon, etc. -- includes offline
Netflix would have to pay significantly more for its content to offer an offline mode. Even HBO, who owns most of its original content -- doesn't do offline because again, the costs would be exorbitant.
EDIT: To be clear I'm not being all-inclusive, as JFB points out below me, there are even nuttier licensing schemes too. And this is before we even talk about international, where you typically have different agreements with every. single. territory.
When you're frustrated by some lacuna in a video service's offering, 99% of the time the feature is missing, the reason is "licensing". Content ownership is going to devolve into small offices of tens of attorneys and support staff, managing these licensing deals. Universal Studios et al will simply be licensees of Jaws properties for their theme parks.
It's done this way for financial bookkeeping, legal liability, and tax structuring reasons. This type of setup is more popularly known as "Hollywood Accounting" and is the reason why a movie can make hundreds of millions but still yield a "loss." (The studio acts as a distributor and is payed a distribution fee; the IP owning company receives royalties; the production company that actually writes the checks for expenses gets its cut "last" after the income has been redirected to various other entities.)
Yes I've tried various VPNs and it's far better but I don't like the layout they changed it since I had used it the first time.
The biggest problem is the bizarre customer service which seems to be very amateurish. I was billed twice per month somehow they got approval to bill my credit card again, same address same person - me, without me giving approval. And it was a battle to get the representative to understand that was a problem.
The representative said she couldn't refund multiple months but I asked how they could take multiple months but not refund it! After some arguing (very unprofessional) she agreed to refund two months.
I asked her to cancel my account and she asked me why! Jesus Christ why do you think! You bill me twice, no approval, you drag your feet to refund my money you took and then are surprised when I want to cancel my account.
The concept is great better than MythTV, torrent or anything I could get working but their billing and customer service absolutely sucks!
The billing is what is upsetting how can a large company have such terrible billing. And they don't care it took so much.
Part of my chat
Netflix Courtney Okay, so what I can do for you is get that account cancelled. I am able to refund 7.99 back to you too. Would you like me to credit back that 7.99 or add it on this account so you get Netflix free next month?
You Shouldn't that be $7.99 X 2 for two months?
Netflix Courtney I totally know what you mean. But I am only able to do one month. I would love to give you 2 months but the system only allows one.
You Why would the system create and bill me for a separate new account?
You Credit me the $7.99 and cancel my account please
Netflix Courtney We didn't create it. Someone must of created that account. Also, in November, a movie was streamed on it. That is why I can only do one month as someone was using the account.
Netflix Courtney Not a problem, give me a moment.
You Well you have a security issue then because I never created it
You I'll get the other $7.99 back from Visa
You It's all used from the same IP mine
Netflix Courtney Well, do you want me to see if I can do anything further for you?
You If you can credit me back the entire amount yes, but also cancel my account. Let me know either way
Netflix Courtney Okay, give me a moment to see.
Netflix Courtney Okay, so I am reaching out and in this rare occasion, I will credit back both 7.99. I will get this all taken care of for you.
Netflix Courtney Do you still want me to cancel this account too?
You thank you
You yes I don't trust it if it creates a new account without me creating or authorizing it
Netflix Courtney Well, someone might of got a hold of your information. I am not sure. Give me a moment to do this for you.
Netflix Courtney Well I have gone above and beyond to take care of this for you David. I am sorry you are not satisfied.
It's reminiscent of Sony's attempt to keep their content studios and product groups under the same tent. Any company whose business model is based on running unstoppable forces into immovable objects is always going to be at a competitive disadvantage in the long term. HBO just hasn't figured that out yet.
And you know this how? I'm pretty sure the execs at HBO have run the numbers.
Why HBO Can't Afford To Offer A Stand-Alone Streaming Service http://www.forbes.com/sites/erikkain/2012/05/11/why-hbo-cant...
Funny, Netflix seems to 'afford' it just fine.
To make up for the lost stream of customer acquisition, they'd have to:
a) Cut prices by more than 50% to become competitive with Netflix/Hulu. This will cost them billions a year.
b) Increase their catalog size significantly, which would cost billions a year.
To give you an idea of the costs of licensing, HBO's last major deal was with Universal studios and cost them over $2 billion for access to their future movie catalog.
It's hard to come up with a scenario where cutting their exclusive tie with cable makes sense financially right now. It's not "bullheaded" to say "no, we shouldn't throw away $10+bn/year to give Bob his internet subscription while we're in the midst of a death battle for the future of digital entertainment distribution".
Netflix can do it because (a) they have a big catalog and low prices to entice subscribers with, (b) they got much of their catalog on the cheap before studios fully understood its value; this perk is going away as licenses renew, (c) it has no choice. Whether Netflix can grow its original content business within the constraints of its low subscription price faster than its licensing costs get out of hand is still up in the air.
But that's going to happen -- and is happening -- anyway.
"no, we shouldn't throw away $10+bn/year to give Bob his internet subscription while we're in the midst of a death battle for the future of digital entertainment distribution".
"What? A phone that plays music?! Are you crazy? Do you realize how much money iPods brought to this company last year?"
Apple didn't build the iPhone because it was profitable. They built it because they knew that a race was about to begin, in which second place was really going to suck. HBO is faced with the same reality, whether they believe it or not.
Whereas if HBO changes models, it will cannibalise the existing business model at a net loss to the business overall.
So the analogy with Apple's introduction of the iPhone is not relevant.
Let's take a look at subscriber growth on Netflix versus HBO over the next few years, and resume the discussion then. As RIM learned, the first few derivatives of that number are important.
The original pitch was never "check out these amazing apps". There were no apps. People's minds were blown by the fact that you could get a non-hideous phone with a UI not assembled by two troupes of rival chimpanzees.
HBO could quite literally suspend operations for the next decade and it would still be vastly more profitable than Netflix, especially now that Netflix has begun incurring massive content production/acquisition costs (see e.g., http://www.marketwatch.com/investing/stock/nflx/financials and the massive drop in Netflix's net income after its sweetheart content deals with Starz and other media companies expired).
They seem happy to offer such subscriber models outside the US, so they're obviously not refusing to think about it. I'm sure they think about it very much every day and have complete plans to roll out such a service in the US as well the second it makes financial sense.
I really enjoyed House of Cards. Lilyhammer was pleasantly surprising and I'm looking forward to future seasons. I recently tried watching Hemlock Grove and that was awful. I'm sceptical of Arrested Development: I loved the original, but it's been a long time and I feel like it's time to move on.
Otherwise, I find Netflix to be attractive in cycles. Every now and then, I will discover a bunch of new things (be it movies or TV shows) and binge watch them, and then I feel like there nothing left on Netflix. I keep paying on "down periods" because I like there is a sense of security because I have a high quality / stable streaming service available to me. Then, after a few weeks, I eventually return to Netflix for more binge viewing.
How the hell do they know this? Girls and Game of Thrones have been huge hits and an equally strong argument could be made that thanks to these two shows alone HBO is well over 30 million subscribers, hence having a larger viewership than Netflix. Pretty irresponsible imo to base an entire article and make a factual statement in the headline based on a hunch.
I can see how the responsiveness would work well on mobile devices, but it's painful to discover content on the site via a laptop. The content itself is OK since you have a fixed width.
TL;DR - The website is very difficult to enjoy because of the design.
Sorry for not getting to you faster.
At browser widths of about 1400px and above, a buffer appears on the right hand side of the page. If your cursor is in that area the main content div won't scroll.
I'm thinking it may be an error since the main content div stops expanding at about 1400px but the black header/nav does. At widths lower than 1400px the header and content div expand/shrink together and the scrolling problem does not occur since the content div fills the full width of the page to right.
If I could pay Netflix prices for HBO Go, I would do it in a heartbeat. But there's no way I'm going to buy a TV and pay +$100/month for cable to become an HBO subscriber.
Because of their different business models, you'd think that the only metric they should be measured on is revenue vs. revenue. To compare subscribers seems like sensationalism and poor logic.
If I had the people and the skill I would try to launch such a startup in France. I have no idea why there is no equivalent, it's a promised success.
Netflix has more subscribers because it's cheaper. HBO on the other hand has less subscribers, but I'm guessing that they make more profit than Netflix. At the end of the day, it depends on which one you think is more important. More profits or more subscribers?
I wonder how many people are like me and only pay for the months in which Game of Thrones is on (Q2 so far)?
HBO hovers between 27 and 33m depending on the quarter.
Netflix has already lost some of it's content because they were deemed too big of threat to the content provider's main business (e.g.: Starz [1])... I only imagine this problem would magnify 100x if Netflix were owned by Apple.
[1] http://money.cnn.com/2012/02/29/technology/netflix_starz/ind...
I believe they have the Xbox set up so Netflix works right out of the box.