The rise of online video streaming is nothing new; Netflix, Hulu, and Amazon Prime have been around for years, and YouTube has become a video behemoth. That being said, traditional TV has remained surprisingly resistant to the internet’s disrupting effects while other entertainment industries like newspapers and music have been decimated. But it looks like the TV industry is finally experiencing a major shift that will result in a major exodus of TV advertisers and cable subscribers. I explain why in this video.
Back in 2012, I interviewed Jake Caputo, a web designer who had a novel idea for how to convince HBO to launch a standalone subscription service that didn’t require a cable package. Instead of simply voicing his wishes, he created a website called TakeMyMoneyHBO.com. It provided a helpful Twitter widget that allowed one to tweet out how much money you would pay for such a service. Because the widget also generated an associated hashtag and a link back to the website, it quickly gained a critical mass that allowed HBO executives to witness, in real time, how much money they were leaving on the table by continuing to require an expensive cable subscription as a prerequisite for HBO.
Well, Caputo finally got his wish (and was even featured in an official HBO ad for his troubles). Late last year, HBO announced it was launching a standalone service, called HBO Now, and the product debuted in April. Almost immediately, the service was declared to be a direct competitor to Netflix, a narrative that was foreshadowed in 2013 when Ted Sarandos, Netflix’s chief content officer, told a reporter, “The goal is to become HBO faster than HBO can become us.” Netflix, the thinking goes, has always positioned itself as a competitor to cable, and so HBO Now will serve as an alternative for those wanting to cut the cord. This idea that the two are competitors is considered such conventional wisdom that Netflix’s shares dropped 3 percent immediately after HBO’s announcement. When Netflix CEO Reed Hastings claimed he didn’t consider HBO a threat, Wired responded with “Yeah, right.”
But HBO is only in competition with Netflix in the sense that it competes for attention, so technically it’s competing with just about any form of media, whether it’s newspaper subscriptions or music downloads. But there’s virtually no overlap in HBO programming and Netflix programming, which means there’s not only little redundancy for those subscribing to both but also these two companies are not bidding for access to the same programming, which would drive up the price of said programming (I would say Amazon Prime is much more of a competitor to Netflix on this front, since they’re likely bidding for quite a few of the same shows and movies).
Also, HBO Now will give many hangers-on to cable just the kind of excuse they need to finally cut the cord, and with joint Netflix and HBO Now subscriptions they can get access to many of their favorite cable shows and the Netflix/HBO original programming at a fraction of the price of what they were paying for cable. Currently, the average cable bill is $64, with many paying upwards of $100 per month. With Netflix’s $8.99 monthly subscription and HBO’s $15, a cable subscriber is looking at a minimum 62 percent savings if he cuts the cord and subscribes to BOTH Netflix and HBO.
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If anything, HBO’s threat to Netflix lies in its ability to push other cable networks into launching standalone apps. As Nelson Granados noted in Forbes, immediately after HBO announced HBO Now, CBS announced their own app. Because Netflix licenses content directly from networks like CBS, these networks will be motivated to drive up prices or rebuff Netflix completely once they’re in direct competition with the company.
Of course, Netflix hasn’t been resting on its laurels and has taken aggressive action in building its own content moat in order to shield itself from the capricious actions of frenemy cable networks. As the New York Times reported, the company has tripled its original programming in just the last year. Just as we now consider Netflix’s mail delivery DVDs to be the vestige of a bygone era, harking back to the days of movie rental stores, it may not be long before its aggregation of old television shows is viewed as similarly anachronistic. Where once there were seasons of Twin Peaks and Friends, a million Frank Underwoods and Piper Chapmans will bloom.
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There are a number of ways that Netflix is upending the traditional approach to original TV programming, but perhaps its most radical move has been its decision to release entire seasons at once rather than the weekly drip-drip-drip airing of episodes that’s the norm for the rest of the TV industry. Recognizing that we have become a binge-watching culture, Netflix understands the marketing value of allowing a consumer to soak up a bunch of programming at once so that he or she can then go on to evangelize the series to other would-be fans. So why is Amazon eschewing this same strategy with its own original programming?
Unlike Netflix Instant users, Amazon Prime subscribers do not get every episode of Amazon’s original shows all at once. Their pilots are made and then crowdsourced; they move forward with the most popular ones once users have seen them.
Although this is a direct approach of gaging reactions, things get a lot more complicated from there.
Once users have selected the worthy pilots, Amazon commissions a whole season. Then, they make the first three episodes available to anyone with a compatible device, and make the rest available exclusively to Amazon Prime members. However, even Prime users have to wait to watch every episode, since after the first three, they release the rest one week at a time.
Confused yet? You’re not the only one.
At NPR, Eric Deggans recalls seeing John Goodman on The Daily Show to promote Doonesbury creator Garry Trudeau’s Alpha House. “That strategy doesn’t seem likely to feed binge-viewing appetites the way Netflix does,” Deggans said. “Alpha House seems more like a well-crafted perk for those who already subscribe to the Amazon Prime service.”
Even the show’s stars don’t necessarily understand how the process works, as Goodman revealed during a recent stop by The Daily Show. “I don’t know,” Goodman said sheepishly, when host Jon Stewart asked how to see the show. “I’m selling their product…I’m just a cog in their machine of world domination.”