Competition is heating up in video streaming as Netflix (NFLX -0.51%), the first mover and leader in the industry, has suddenly found itself surrounded by deep-pocketed rivals. In recent weeks, both Time Warner's (TWX) HBO and Apple have announced new initiatives in over-the-top entertainment.
HBO plans to launch its new HBO Now service in April exclusively on Apple products for $15 per month, while Apple has an eye on its own subscription service of about 25 channels at a price of $30 to $40 per month. Meanwhile, Amazon.com (AMZN -1.14%) has become a legitimate force in online video with its victory in the Golden Globes, and everyone from Sony to Dish to CBS is preparing to offer some version of a Netflix-style entertainment package.
With that competition has come rising content costs, and there's been no greater reminder of that recently than Netflix's decision to bow out of bidding for "Seinfeld," the 90s sitcom that has become the most financially successful TV show in history thanks to lucrative syndication deals, and has also been named the best show ever by many critics and fans alike.
Is it not spongeworthy?
Netflix recently spent $500,000 per episode on the rights to stream the entire "Friends" series for four years, but it balked at paying a higher price for "Seinfeld." Sony Pictures Television is reportedly in talks with Amazon, Hulu, and Yahoo! to sell the 180-episode series for more than $100 million.
Netflix had an opportunity to acquire the property as early as last year, but it neglected to do so. Management did not offer an explanation for the decision, but there are a number of possible theories.
Maybe cheapness is a sense
The price tag for "Seinfeld" being in the nine-figure range may not seem outrageous compared to Netflix's purchase of "Friends" or the company's near-$10 billion in streaming obligations. Netflix has also dropped a pretty penny on original programming, including an estimated $90 million for the first season of "Marco Polo." Of course, management has announced its intention to grow the percentage of content spending on originals, which perhaps best explains the decision. "Seinfeld" reruns are readily available on cable, whereas original programming gives the company a unique product that cannot be found anywhere else.
Given the choice, Netflix would have certainly liked to claim both "Friends" and "Seinfeld," but the more recent, younger-skewing "Friends" may be a better fit for Netflix as it targets millennial viewers.
This is far from the first time Netflix has lost out on a valuable entertainment product. Last month, the streamer saw titles such as several James Bond movies and the "Batman" sequels, "Batman Returns" and "Batman Forever," disappear from its virtual shelves. In its place, Netflix added newer titles such as "Save the Date" and "Mr. Peabody & Sherman," which perhaps reflects a strategy of moving to newer content in its library.
In 2012, Netflix lost over 1,000 movies, including big-name titles like "Big," "Scream," and "Beetlejuice," when its streaming deal with the premium network Starz expired.
Significant shrinkage
The bottom line is that Netflix will never have a streaming library to match its encyclopedic trove of DVDs. As entertainment consumption has shifted to streaming, content rights have unsurprisingly become more expensive. This isn't necessarily a bad thing for Netflix, but it could lose its claim as the pre-eminent streamer if it misses out on more high-profile titles like "Seinfeld."
Without popular original content or a superior library of licensed products, Netflix has no real way to distinguish among a crowded field, and will lose any significant advantage it once had in video streaming.
Passing on "Seinfeld" may not shortchange Netflix's customers, but if decisions like this become a pattern, it may be a sign that Netflix is losing its competitive advantage, and with it, the chances of delivering significant profits.
