Game of clones: Assessing the winners and losers now that HBO is going to be more like Netflix
Netflix has said it's goal is "to become HBO faster than HBO can become us." Today, HBO just took a huge step in that direction.
After years of speculation and months of rumor, HBO has finally announced that it will offer a standalone streaming service for customers who don't have cable subscriptions. The announcement was made by HBO head Richard Pleper at Time Warner's investor meeting.
Although the news is hardly surprising, it has major ramifications on both the streaming video landscape, and the future viability of cable television. Netflix, with 50 million subscribers, will be HBO's biggest competitor -- Hulu only has 5 million paid users and Amazon Prime, while never announcing specific numbers, says it has at least 20 million. And indeed Netflix's stock, while hardly in a free fall, took a predictable dip today to its lowest point in two months.
But Netflix will be insulated in part by its emphasis on global expansion. And at least initially, HBO says it will only offer its service in the United States. Meanwhile, 14 million of Netflix's 50 million subscribers live outside the US, and RBC Capital analyst Mark Mahaney predicts that two-thirds of the new customers Netflix added this quarter are located abroad.
As for Hulu, its focus is on offering brand new episodes from a variety of networks, so I doubt this will greatly impact its business. That said, if Time Warner, which owns HBO, merges with Comcast, which owns one-third of Hulu, that could make things even more interesting for HBO. It seems unlikely, however, that HBO would host television from other networks -- that would go completely against its branding ("It's not TV, it's HBO, etc., etc.")
Of course, if Time Warner and Comcast do not merge, Comcast won't be happy about losing customers for whom HBO is a huge reason they pay for cable TV. Even Time Warner has reason to worry -- with HBO's web-only offering and networks like ESPN considering similar moves, the future viability of the cable television business in its current state is in jeopardy.
It will also be interesting to see if Plepler stands by what he told Buzzfeed's Matthew Lynley in January -- That he doesn't care when subscribers share passwords with friends and family, calling it a “terrific marketing vehicle for the next generation of viewers.” Of course, password-sharing is common across all services, working as a sort of organic marketing. And with HBO's philosophy that you should be able to watch it "everywhere," the notion of limiting the number of devices registered or other schemes to crackdown on password-sharing may do more harm than good.
But this really comes down to Netflix vs. HBO. Right now, HBO is more profitable than Netflix and this standalone service is only going to boost those profits, given the likelihood of fatter margins without Cable company middlemen. But Netflix is catching up fast and some predict it will outpace HBO by year's end. It's also spending a huge chunk of those profits to subsidize growth overseas, meaning that once it's got a foothold in those markets it will presumably begin spending more aggressively on content.
But that doesn't mean there isn't room for both. Netflix and cable TV are not mutually exclusive for customers -- in fact, four-fifths of Netflix and Hulu subscribers also pay for cable, though that number is surely dropping. And so with "cord-cutting" on the rise and Netflix having recently pass HBO in terms of US subscribers, HBO had little choice but to chase this fast-growing market.
The most important thing for Netflix, then, is to keep producing great original and exclusive content in order to compete with HBO. HBO's been doing this a long time, and while Netflix has had enormous success with "House of Cards" and "Orange Is the New Black," it can't rest on its laurels. Just look at AMC -- once considered to be a serious competitor to HBO in terms of offering quality content, its future glory is uncertain: "Breaking Bad" is done, "Mad Men" has one season left, which leaves "Walking Dead" as its only huge hit (AMC promises the show will still be around in 2022, which tells you something about how important that show is to the network's reputation).
One thing we can be sure of is that the content arms race between HBO and Netflix (and Amazon, which just put out the best show ever produced by a tech company in "Transparent") will continue. If that includes more great shows like "True Detective" and "House of Cards," then audiences will be the biggest winners of all.
[illustration by Brad Jonas]