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Netflix: Challenging the dominance of cable television

Following competition to its video internet streaming and rental services, Netflix, Inc. (Netflix) has started to produce original programming for sole distribution on its service. Notably, this means that the company has started to follow a similar model to Home Box Office (HBO), a subsidiary of Time Warner Inc., which is a premium pay television service available through cable. Netflix’s latest movement towards integrated content production and delivery serves as a threat to established players within the cable space.

The first season of Netflix’s first major original commission, House of Cards, which stars Hollywood actor Kevin Spacey, premiered on February 1, 2013. Interestingly, rather than following the traditional weekly installment mode of distribution, Netflix offered the entire 13 episode season on the same day through its online streaming service. House of Cards saw success in terms of subscriber viewings, with the company’s vice-president of product innovation, Todd Yellin, claiming that it was the “number one Netflix show on streaming in the UK and around the world” in February, 2013.

The company is set to continue to distribute exclusive content through its streaming service in the near future: new series Hemlock Grove is due to be distributed in the same fashion as House of Cards on 19 April. Furthermore, Netflix is also due to distribute season four of Arrested Development, a comedy that was formerly broadcast on the Fox network in the US prior to its cancellation in 2006. Notably, Arrested Development has a strong fan base which Netflix will hope to attract to its service when the new season is distributed through its streaming service on May 26, 2013.

Interestingly, reports have indicated that per-episode production budgets have been high – multi-millions of dollars- for these pieces of original programming, and therefore represent significant investment for the company. Additionally, their high budget nature means that they can effectively compete within the same space as many of HBO’s premium content in terms of quality.

It will be interesting to see if Netflix’s steps towards becoming a producer of exclusive premium content pay off. The large capital outlay required to produce such programming may serve to impact the company’s profitability, and it will therefore have to show restraint in terms of production volumes, as well as ensure that content remains of high quality. If the company can succeed is maintaining this balance, and leverage its exclusive content to increase streaming subscriber numbers, which stood at over 33 million at the end of December, 2012, it could exist as a viable substitute to premium cable services.

Reports that you might find interesting:

Netflix Inc: Can it succeed in the UK?

HBO: Driving revenues and profits for Time Warner

For updates on the technology and telecoms sectors, follow me on Twitter: @Matt_MarketLine

Posted in Consumer, Technology.

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