Netflix CEO Reed Hastings Just Told Cable How to Beat Netflix

He just doesn't think they'll do it.

Adam Levy
Adam Levy
Nov 22, 2015 at 2:24PM
Consumer Goods

Netflix CEO Reed Hastings. Source: Netflix.

The television industry doesn't know what to do about Netflix (NASDAQ:NFLX). Should it stop selling shows to it? Should it sell shows to a competing service such as Hulu to increase its competition? Should it reduce commercial time to make cable more attractive? It's clear TV has to do something as ratings continue to decline and Netflix subscriber numbers continue to improve.

Netflix CEO Reed Hastings has some advice for cable networks -- how he would compete if he were a traditional cable network. He told the audience at the New York Times DealBook Conference earlier this month that he would expand TV Everywhere, which lets subscribers access content via the Internet. Of course, that's easier said than done.

Not everyone is HBO
Time Warner (NYSE:TWX.DL) pioneered TV Everywhere back when it was still a cable and entertainment company. It gave subscribers access to TBS and TNT content via streaming over the Internet in late 2009. In 2010, HBO started streaming its back catalog via HBO Go, and numerous other networks started to join in.

HBO and CBS's (NYSE:CBS) Showtime recently went completely over the top, offering stand-alone subscriptions to their streaming services. Meanwhile, other networks have licensed content to Hulu for next-day streaming, but TV Everywhere options remain extremely limited.

Subscribers can only stream certain content outside the house, and they don't have access to back catalogs to catch up on certain series. If you compare the amount of content to watch on Netflix for $9.99 per month with that available on your typical TV Everywhere service, Netflix wins hands down.

As mentioned, HBO and Showtime are some of the only networks that can compete with Netflix on content and convenience. That's because those networks don't run commercials. There's no risk of cannibalizing broadcasts or seeing a drop in Nielsen ratings.

Traditional, ad-supported broadcasters have been slow to act, afraid to rock the boat on what have already become choppy waters. Time Warner has said it may stop selling some content to Netflix, but it made no mention of keeping it for itself and putting it on a TV Everywhere app. CBS, meanwhile, is pushing its CBS All Access service, which doesn't require a cable subscription.

Hastings was quoted as saying: "We’ve always been most scared of TV Everywhere as the fundamental threat. That is, you get all of this incredible content that the ecosystem presents, now on demand, for your same [price] a month. And yet the inability of that ecosystem to execute on that, for a variety of reasons, has been troubling."

Reconnecting the cord
TV Everywhere has the potential to add real value to the traditionally bloated cable bundle. Instead of adding more channels that people don't want to watch, cable can offer subscribers all the channels they want, wherever they want, whenever they want. That's the Netflix model, but with newer, better, and more content.

A recent survey from Altman Vilandrie and Co. with Epix found that young millennials (age 18 to 24) are 23% less likely to cut the cord if they use TV Everywhere than those who don't. What's more, only 36% of consumers know about TV Everywhere options, so improving them and marketing them better could go a long way to prevent cord cutting.

But the cord cutting has already started in earnest this year, with hundreds of thousands of net subscriber losses at pay-TV distributors. Beefing up TV Everywhere could go a long way toward getting some customers to reconnect. It could reduce subscriptions to supplemental services such as Netflix and Hulu and increase time spent watching content within the ecosystem as well. That would mean more ad revenue for broadcasters and providers.

Still, it's unlikely networks will open up more of their content to the Internet until their hand is forced. That could come from cord cutting, but more likely from a decline in advertising rates as viewership drops. Until then, Netflix will reap the rewards as it attracts more viewer hours and continues to be able to buy up content from networks.