Convergence and disruptive innovation. Get used to it. The convergence comes from online video subscribers to services like Netflix deciding that TV and computer entertainment are increasingly interchangeable. The disrputive innovation is that by lowering its streaming cost versus its mail-in package, as well as offering excellent selection, Netflix has evolved from a transitional niche provider to a serious competitive threat for mainstream entertainment companies.
The potential decline in subscribers changes the economics for cable TV. The lost audience, particularly if the demographics skew younger, could substantially reduce advertising revenue. Netflix is the canary in the coal mine. It's 'proof of concept' many encourage larger, better funded competitors to enter with a different set of packages that hasten what already appears to be a rapidly shifting business. Grab your popcorn and enjoy. JL
Amy Lee reports in the Huffington Post:
"Netflix claims that its services are complementary to cable subscriptions, rather than competitive. But research is beginning to suggest otherwise. A new report from The Diffusion Group showed that 32 percent of Netflix users plan to cut at least some part of their cable subscription, twice the percentage that indicated they'd do so just one year ago.
Many of these so-called "cord cutters" are doing so for reasons other than cost. Sixty-one percent of these users cited online video as the reason for the downgrade, with 66 percent of those users citing Netflix specifically. Only twenty-four percent said cost was the main reason for downgrading their service.
Perhaps cable providers should be a little more worried about Netflix, which now has 22.8 million subscribers.
Though executives from Time Warner, Viacom, Comcast, Cox, and News Corp. shrugged off the threat of Netflix at a discussion on The Cable Show on Tuesday, these results seem to show that the two businesses may not be as different as cable companies--and Netflix itself--keeps insisting.
Netflix, though it primarily provides past seasons of television shows and out-of-theater movies, recently entered into a deal to offer David Fincher's new series House of Cards and outbid HBO and Showtime to secure exclusivity rights.
Still, execs don't seem too panicked. "They got involved in one show but that's really not their fundamental business," said Viacom CEO Philippe Dauman, according to PCMag. "It's not that easy to get into the content business."
Netflix CEO Reed Hastings has said in the past that he would prefer not to pursue these sorts of deals, but rather, to obtain rights to the content that other companies provide. HBO and Showtime have remained steadfast Netflix holdouts, preferring to offer their content exclusively, as with HBO GO.
"If we can't spend the money with HBO and Showtime, we've got to do things like [pursue original content]," Hastings said recently. "Our preference is to do that with HBO and Showtime. The check's not big enough yet."
Still, it seems that Netflix is, whether anyone likes it or not, becoming a legitimate competitor to the cable companies. Meanwhile, cable companies vow that they are trying to give customers the kind of access Netflix allows.
"Let's never give our customer a reason to cord cut," said Comcast Cable president Neil Smit, as quoted by PCMag. "Whether it's an iPad or TV screen or mobile, let's let them view it the way they want to view it. ... We're bringing more video functionality to the TV screen."
But Netflix is already offered on over 250 devices and will soon add a Netflix button to remote controls that lets users go directly to content on their televisions. The cable companies may have to move a little faster.
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