Reed Hastings Can't Be Serious

If Netflix (Nasdaq: NFLX  ) CEO Reed Hastings has his way, in a few years your cable or satellite television provider will be offering you Netflix as a premium streaming channel.

Hastings continues to talk up Time Warner's (NYSE: TWX  ) HBO as his company's biggest competitor, proposing that one day Netflix can be a premium add-on service alongside HBO and Showtime.

"It's in the natural direction for us in the long term," Hastings said at the Morgan Stanley Technology, Media and Telecom Conference earlier this week -- as retold by PaidContent.org. "Many (cable service providers) would like to have a competitor to HBO, and they would bid us off of HBO."

I see what Hastings is doing. He's clever. He wants cable companies to see Netflix as an ally instead of a competitive threat. After all, if Hastings is trying to acquire licensing rights to movies and television shows, he can't upset the cable industry that for now effectively monetizes the productions.

Netflix never referred to folks ditching their cable companies as "cord-cutters." When the pay-TV industry suffered its first sequential drop in paying customers -- ever -- two years ago, Hastings was unwilling to take credit for the couch potato defections.

However, is HBO really a bigger rival than the three companies that are more in its face?

  • Amazon.com (Nasdaq: AMZN  ) has its digital smorgasbord that undercuts Netflix on price (and, admittedly, selection).
  • Dish Network's (Nasdaq: DISH  ) Blockbuster is the only company that matches Netflix's ability to deliver both DVDs by mail and through digital distribution, though its unlimited streaming service is currently limited to Dish satellite customers.
  • Coinstar's (Nasdaq: CSTR  ) Redbox is clearly the beneficiary of Netflix's neglect on the DVD front. Redbox's DVD revenue soared during the same holiday quarter in which Netflix shed millions of DVD plan accounts. Later this year it will finally introduce a streaming service.

Now it's true that HBO and Netflix are starting to resemble one another. Netflix dived headfirst into original programming with Lilyhammer last month. HBO Go -- the streaming service that HBO makes available to subscribers at no additional cost -- will hit Xbox consoles next month.

However, Netflix is already considerably cheaper than HBO -- and that's before we consider the pricey cable bills that are required before its actual cost. If it ever were to position itself as an add-on option to get the broadcasters on its side, Netflix would have to be at a price point that would be lower than stand-alone subscriptions, and a chunk of that would go to the cable, satellite, and broadband television companies.

It doesn't make sense, even if it sounds like the right thing to say.

Stream on
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Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Coinstar, Netflix, and Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 01, 2012, at 3:47 PM, crca99 wrote:

    Ouch, I so wanted to get rid of Comcast cable and this looks like I'll pay them more.

  • Report this Comment On March 01, 2012, at 4:17 PM, ibrobertfwaxman wrote:

    AMZN undercuts everybody and loses $$$ every time.

  • Report this Comment On March 02, 2012, at 9:35 AM, MKArch wrote:

    Rick,

    The real competition to Netflix is MSVP or what ever the acronym for Cable/Telco providers is as Hastings was pointing out last year and in the same quote with the HBO nonsense. I have a lot of respect for TMF and learned most of my investing skills as a sub of H.G. but for the love of me I can't figure out how you can't see that MSVP is going to give away damned near everything that Netflix will try to charge for? Streaming may be the future but that doesn't mean $8.00/ month for all you can eat streaming will be a viable business let alone successful. How the heck can you not see that Netflix model doesn't work?

  • Report this Comment On March 02, 2012, at 9:49 AM, MKArch wrote:

    One more point Rick, streaming is supposed to be the future for Netflix yet they currently have over 20M U.S. streaming subs which is about 25% of the addressable U.S. market but their U.S. streaming business is NOT PROFITABLE. What else do you need to convince you that all you can eat for $8.00/ month just isn't a viable business model?

  • Report this Comment On March 27, 2012, at 4:06 PM, GRACEAZ wrote:

    To me Netfix is like HBO, I pay to watch the shows.. As a Netflix customer since the late 90's I still think they provide the service that I want.. I want to watch the new movies and do not have to rememeber to return them on time, with NO Late fee's. They are distributed locally so I get them when I want and they employee people in my community.. so not sure what the big deal is about? We started using the streaming service a couple of years ago and I like it. I can log in and watch what I want, when I want and it is great when the Grandkids are visting. I select the Just for Kids tab and I don't need to worry about the content of the shows. TOO much time is spent arguing about the CEO and the way he runs his company. Those of us who what will subscribe those who don't, well they will go elsewhere.

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