It was a little over a year ago that Netflix CEO Reed Hastings laid out their strategy:
“The goal is to become HBO faster than HBO can become us.”
I would argue that this has happened. They’ve surpassed HBO in number of (paying) subscribers, essentially proving the market for streaming internet television separate from a traditional pay TV (cable, satellite, IPTV) subscription.
So let’s have some fun. If we take the assumption that television will move online at face value,1 what options could a television viewer have 5-10 years from now?
The New HBO: Netflix
Netflix is leading the way in premium online video, both in marketshare and mindshare. They see themselves as maintaining this premium brand, and their long-term manifesto specifically mentions having a top-tier viewing experience, including no commercials.
Today, if you ask people what the best channel on cable is, they’ll probably say “HBO,” even if they don’t subscribe. Everyone knows HBO is where high-quality television like Game of Thrones and True Detective is shown. Likewise, if you ask people where the best online video is, they’ll probably say “Netflix,” thanks to original shows like House of Cards and Orange Is the New Black.
Netflix has the market share now, and they’re also doing everything they can to stay foremost in people’s minds when it comes to television. I don’t see them losing this position as more and more video services pop up; their huge head start in content and technology should keep them in the lead. Provided, of course, they don’t do anything stupid.
The New Showtime: HBO
The first name people think of in premium television today is HBO, but the second is Showtime. They win their fair share of awards and attention with shows like Dexter and Homeland; but they’re usually thought of in the same sentence as HBO, not on their own. This is the place I see HBO occupying: excellent in their own right, but always in relation to Netflix.
This doesn’t seem like it should happen. HBO is part of a much larger corporate behemoth and has had many profitable years of existence to build its content abilities. Also, according to numbers from SNL Kagan, HBO’s wholesale price (the price paid to HBO after the cable company takes its cut) is around the same price as Netflix’s price to its end users. In other words, if HBO were to instantly switch to a direct-to-customer model, they would only need to match Netflix on price to bring in the same revenue.
I see two major obstacles for HBO going forward. The first is their ties to the cable industry and the status quo. While the current system allows them to arbitrarily raise their prices without immediately alerting the end-users (a problem Netflix is running into), it also ties them closer to the existing pay-TV market and gives them less time to establish themselves firmly in the streaming market. The second problem is that their current forays into the streaming market have been met with technical glitches at the worst possible times. Normally for a tech-savvy media company, the technical problems are easy and the content problems are hard, but at the scale HBO would need to operate to compete on Netflix’s own turf, the technical problems are quite hard and could impact HBO’s bottom line more than they realize.
The New Network: Hulu
Network television is often decried for being bland, unoriginal, and all-around mainstream. But what every television hipster (of which I am one) knows in their heart is that this is where the eyeballs are. It used to be that broadcast television–and by extension network TV–was the only way to reach most Americans. Today, cable’s audience has grown to the extent that massive audiences are possible for shows like Breaking Bad, but the original networks still command a powerful presence in the television world.
Hulu is most known for making that network TV readily available to internet viewers. Viewers can easily catch the last couple of episodes of their favorite network dramas and late-night talk shows for free on their computers as long as they are willing to tolerate a few commercials to do so. They also offer a premium service, Hulu Plus, that allows access to more episodes and shows as well as allowing viewing through smartphones, tablets, and set-top boxes. Unlike Netflix and HBO, however, Hulu Plus still contains commercials. While this seems antithetical to a premium service, it is practically no different than nearly every single channel available on cable.
I expect Hulu to continue to invest in its original programming, much like HBO and Netflix. Its focus on network-style programming gives it the ability to become the next mainstream-focused network. It remains to be seen, however, whether its decision to keep advertisements in its subscription offering will affect its ability to keep subscribers over the long term.
The New ESPN: ESPN
ESPN’s describes themselves as “the worldwide leader in sports,” and they have done their best to live up to that description, especially when it comes to online video. ESPN has offered live events via their ESPN360 website since 2007, relaunching it as ESPN3 in 2010. ESPN3 is not a free service, however, as it is only available to internet users whose service providers have agreed to pay ESPN for access to the service. This is in addition to ESPN’s recently launched video platform, appropriately titled WatchESPN. Similar to HBO GO, this service is only available to subscribers of participating cable providers.
Other major sports providers, like NBC and FOX, have their own streaming video websites and apps. Unlike ESPN, however, these are relatively recent developments, and ESPN’s head start in building out its live streaming infrastructure shows. Throw in ESPN’s overwhelming mindshare in sports broadcasting, and they won’t be going anywhere in the new television world.
The New Cable: TV Everywhere
TV Everywhere is an initiative by the existing cable/satellite companies to tie online streaming to existing cable subscriptions. For example, to use the March Madness app to watch the NCAA Men’s Basketball tournament, you must be an existing cable subscriber to watch any game not broadcast on CBS.
In the future, it’s not hard to imagine a “virtual cable” operator that has access to these apps as its primary service as opposed to a secondary add-on. This service probably wouldn’t be any cheaper than existing cable, but it could easily compete in other aspects such as ease-of-use, customer service, and a general awareness of its place in the new world that other cable providers would not have.
So why is this listed separately from HBO and ESPN? In actuality, it’s not that different, and those channels could easily be part of this “virtual cable” company. The difference with HBO and ESPN is the simple fact that those channels have the sheer brand power to break away from cable. It’s unlikely that TBS or Animal Planet could sell their channels outside of a bundle, but HBO and ESPN have such strong brands that not only could they easily sell access to their apps on their own, they could break their existing cable contracts to do so and not lose many (if any) cable affiliates in the process since no cable company wants to offer a service without those channels.
Nothing, really. While I could see a lot of these things playing out as I proposed here, anything can change when there’s technology involved. The mythical Apple Television (separate from or a reboot of the current Apple TV) could be just as game-changing as everyone wants it to be. Netflix could have another Quikster moment or find that its original content strategy is unsustainable. The ongoing net neutrality debate could actually affect things.
There’s a lot of what-ifs ahead in the world of television, but personally, I can’t wait to see what happens.
I know I’m asking a lot here. The incumbent providers, many of whom own channels, will do everything they can to protect the status quo. But let’s face it, saying “everything will stay the same because the de facto monopolies given to the current television providers allow them to prevent this future at all costs” is about as interesting as sending the eagles to Mordor. ↩