Powerful Netflix results put pressure on TV Everywhere

English: The headquarters of Netflix in Los Gatos.

At the risk of arriving at a solution the way Abbott and Costello did in their “7 x 13 = 28″ routine, we’re going to try to add up the events of the last month at Netflix, Walt Disney Co., HBO and elsewhere.

    • Wednesday — Netflix reports its best quarter in quite a while, picking up more than 2 million digital subscribers to easily surpass most analyst estimates for customers, revenue and profit, bolstered by surge in online-video enabled phones, tablets and smart TVs.
    • Thursday night  — HBO’s new CEO implied that he’s at least willing to consider the possibility of an online-only HBO subscription offering, if something can be worked out that won’t drive pay-TV distributors  to violence. HBO parent Time Warner Inc. has been one of the main advocates of TV Everywhere, the central premise of which is that anybody who enjoys a TV show online has to be a part of the multibillion-dollar television-industry ecosystem, which largely revolves around big cable-subscription packages.
    • Jan. 15 – The Diffusion Group, a digital media research firm, issues a report saying subscriptions to traditional pay-TV will drop from nearly 101 million in 2012 to less than 95 million by 2017. The study acknowledges that 6 million subscribers won’t shorten a cable executive’s life span, but analyst Michael Greeson believes we have reached a “tipping point.” One of his primary recommendations for cable: offer à la carte. Said Greeson:

American operators should have learned from Canadians five years ago (as we noted at that time). Though hesitant to offer anything close to a true à la carte package, many Canadian operators introduced ‘modified’ à la carte offerings. Why? Not out of the goodness of their heart, but because ‘the local markets demanded it,’ and because it was a “compromise” needed to retain subscribers.

  • Dec. 16 — In the wake of Disney’s decision to make Netflix its exclusive pay-TV provider of first-run theatrical films beginning in 2016 — bypassing traditional cable channels in doing so — influential analyst Richard Greenfield asked if the time has come to scrap “TV Everywhere,” and use Netflix and other online video providers to accomplish the same goal. He argued quite reasonably that Disney’s move signaled very clearly that the company doesn’t think TV Everywhere can be implemented quickly enough to adapt to a rapidly-changing environment.
  • Friday — TDG again: “Traditional TV is slowly becoming passé, and an increasingly significant segment of consumers turn to the cloud (and not a local DVR) to meet their demand for content on their schedule.” This leads us back to Netflix, which along with Hulu, Amazon Prime and other rivals was helped by this changing pattern.

Greenfield’s question is the most crucial right now. Yes, the cable companies are primed to get their money one way or another because of the greater demand for its broadband products — a demand directly spurred by the Netflixes of the marketplace. But cable investors can be short-sighted. If they start to see massive waves of cord-cutting, stocks in the cable sector could drop like a stone before anybody takes a deep breath and looks at the broadband figures.

comcast van

Comcast van (Photo credit: Tyler Yip)

Because Netflix, Hulu and its contingent are going to keep adding subscribers as smart TV technology becomes still more ubiquitous and easy to use, and a bigger part of the broadband experience, it’s going to be a sucker’s game to impose onerous licensing terms on them.

The frustrating thing is for cable is that a company like Comcast, which has a very robust VOD platform with a much-improved interface, could be overshadowed by the “over-the-top” players, because you can play online video from so many different kinds of set tops, because the selection is only going to get better, because people are just used to turning to Netflix on a wintry night.

It’s just the kind of frustration that might lead execs to say, “Why don’t we just buy the bastards?” Unfortunately for would-be suitors, Netflix stock seems to have that speculation priced in, and now with Friday’s 15% gain it stands at $169.56. The window to mount an acquisition closed a few months ago.

– David B. Wilkerson