
Netflix now bigger than HBO - edouard1234567
http://qz.com/77067/netflix-now-bigger-than-hbo/
======
colkassad
I just finished watching the first season of House of Cards and I really
enjoyed it. It's up there with original HBO programming as far as quality is
concerned. If they can keep that up then traditional outlets should definitely
stay worried. I know there was some talk about Netflix's future because of
their dependence on content providers, but if they can keep this up then they
certainly have a hand to play.

~~~
filmgirlcw
That becomes the question. The problem is that their current production slate
indicates that they maybe have one -- maybe two -- standout shows to do a
year. HBO typically has 4 (right now that would be Game of Thrones, Girls,
Boardwalk Empire and True Blood with The Newsroom being an easy slot for #5).

Right now, Netflix's original programming track record is really spotty aside
from House of Cards -- which is absolutely HBO quality and would likely have
been an HBO show if Netflix hadn't outbid by such an absurd amount (granted it
was the right strategy to make but I get why HBO didn't match)).

Aside from Arrested Development, however, nothing on their current slate looks
like it will rise above Starz quality. And that's a problem if you expect
people to consistently pay $8 a month.

~~~
jebblue
Netflix just needs movies, we haven't watched HBO since the 80s'. Their
programming was never why we watched anyway. It's all about the movies. If I
want original programming, and we do, we watch the education channels, in HD,
free OTA.

~~~
mbell
As a counter point, I honestly see 'movies' somewhat dying out. Shows like
Game of Thrones, House of Cards and several others now have the same
production quality as movies and aren't hamstrung by the same limitations.
e.g. how do you tell a deep story in 2 hours?

~~~
jimbobimbo
There're plenty of movies that manage to tell deep stories in 1.5 hours.
Netflix is a treasure trove when it comes to quality entertainment.

~~~
__david__
Depends on what your definition of "deep" is. Have you watched _Game of
Thrones_? The story is _very_ complicated and I can't imagine a 2 hour movie
being made out of it without dropping _a lot_ of story on the floor.

~~~
legitsource
You couldn't really make it work in 5 or 6 2-hour movies. There is much more
material in ASOIAF than there is in Harry Potter or something similar, and
they had to split that into almost 10 full length movies.

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filmgirlcw
It's great that Netflix finally beat HBO's subscriber figures but given that
subscriber figures are cyclical (though HBO's have evened out now that HBO Go
is out -- which incidentally was largely the impetus behind HBO GO, to curb
subscriber churn during period's when new series aren't on), it'll take
consistent effort and good programming for Netflix to remain in this position.

The problem is, that strategy takes money. And that $8 a month per household
is probably half of what HBO is getting per household for its 29m subscribers
(plus what they get from home video, licensing and international).

Netflix has pivoted from trying to be cable to trying to be HBO. That's all
well and good but let's not try to spin this as how cord-cutting is "winning."
It's not. If cord-cutting was winning, Netflix would have had more subscribers
than HBO quarters ago. Instead, Netflix's next big strategy is to get bundled
WITH cable providers (which incidentally is a smart approach and could be what
really lets Netflix's subscriber base balloon).

HBO, Netflix and Showtime require original content to really push the needle.
HBO has an advantage of having spent the last 20 years (since Larry Sanders,
really) cultivating the best showrunners and writing talent that have in turn,
brought in some of the best programming in the history of the medium.

Moreover, HBO has a financial advantage in that they make most of their
original series in-house. Netflix does it two ways. They fund series outright
like House of Cards and Arrested Development (but to be clear, 20th Century
Fox still produced and owns the video and syndication rights to AD) or they
acquire the first-run rights (Lillyhammer, Tom Fontana's Borgia). Even in the
cases where they do fund the development, a secondary production company
usually still does everything -- it's not in-house. HBO, by virtue of being a
subsidiary (and the most profitable subsidiary) of Time Warner, has access to
Warner Bros. Television, which cuts down on a lot ancillary costs before it
comes time for distribution.

It'll be interesting to see if Netflix can afford to acquire or do full-
contracts with certain production companies and creator shingles to get rights
to future projects. Alan Ball has a longstanding deal with HBO and David Milch
has a semi-exclusive with them too.

TL;DR This is great for Netflix, but all it really does is make them a real
contender as a premium content network. It doesn't impact HBO's current
economics or have any impact on the realities of running a content business.
Which is basically that good shit is expensive.

------
aidos
I'm really cheering for Netflix. Outside of the US (I'm in the UK) people have
complained about a lack of content but I'll pretty much give _all_ my money to
the people who bring back Arrested Development.

~~~
GFischer
I'm in Uruguay, where we get 1/10th of the US content, and it still blows
local cable out of the water :) .

Video on demand (with no ads!) is a killer feature for me.

Not to mention it's way cheaper than local cable - I'm paying for three
subscriptions (mine, my parents' and my uncles') for less than one month of
basic cable.

The day they can simulate cable's mindless zapping (some sort of preprogrammed
channels), and get sports on board (I'm an NBA fan, and I'd like to watch
Champions' League football too)

~~~
legitsource
The no ads feature is important to me.

I had a subscription to Hulu Plus, and it pissed me off that I paid a
subscription fee and had annoying commercials.

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edouard1234567
One interesting piece of information from this article : During peak periods
of internet use in the US, Netflix constitutes 33% of all downstream traffic.
Impressive!

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dbcooper
It would've been nice if that article compared revenue and profit numbers,
rather than just how many subscribers each service had ...

~~~
filmgirlcw
Well that would have ruined the whole point of the article. HBO accounts for
25% of all of Time Warner's profits. That's significantly more than what
Netflix can offer. And it would also be useful if they did the revenue per
user figure -- but again, that wouldn't be a tweet-worthy and sexy headline.
(It would have also required the author to understand the content business but
I digress).

~~~
riggins
the netflix numbers are actually pretty easy. At $8/months, it's ~$96/year ...
which is close enough to $100 to make for easy math.

Quick and dirty numbers (on just the domestic streaming).

At 30M subs, run rate revenue is approximately $3B. They had about $2B in
content commitments. Delivery costs (i.e. bandwidth) runs about 20% of
revenue. So on their $3B, $600M goes to delivery, $2B goes to content, and
they have $400M-ish in profits.

NFLX is difficult to value because it's growing so fast and the content cost
is a moving target. If NFLX can keep content costs around $2B, then every
incremental customer is 80% profit. Every 1M subs they add, is $100M in
revenue and $80M in profit (capitalize that at 10x and you're adding $800M in
valuation ... keep in mind they added 2M domestic subs in the last 3 months).
Some people argue that content providers will demand higher fees as NFLX
increases subscribers. I'm not convinced. They walked away from Starz and they
cut a deal with Disney that doesn't look any more expensive than what they
were paying previously. And they're also building a library of owned content.

It's definitely one of the most interesting stories to watch.

------
untog
I think that HBO are quietly positioning themselves to prosper when the cable
bubble finally bursts, though- HBOGO is great. Compare that to Showtime, for
example, whose app offerings are widely panned.

~~~
chc
I'm not so sure. HBOGO is exclusively an add-on to the cable service. Its
present quality is irrelevant to the post-cable world as it is completely
incapable of gaining traction outside of the "cable bubble." It is basically a
tree falling in a forest where nobody can hear it. In the far-off future when
HBO gets with the times, who knows what Showtime and everyone else's offerings
will look like?

~~~
doppel
HBO is gaining a lot of traction outside of the US, especially in Scandinavia
with HBO Nordic (HBO GO equivalent without a cable subscription). So they have
the platform to do it, which means if the cable market starts plummeting they
can pivot and start offering it as a seperate package rather than an add-on
for cable.

I have hope that they will do this, but looking at the history it's far from
certain.

~~~
_delirium
My guess is this is exactly what they're planning to do, but that a revenue
tipping point hasn't been reached in the US yet: cable subscriptions still
provide too much money for them to be willing to flip the switch.
Experimenting in Scandinavia lets them lay the groundwork without prematurely
giving up the huge US cable revenue stream.

------
ignostic
The figures don't include pirating. If HBO had been smart enough to launch and
promote HBO GO as a stand-alone service, pirating would be lower and
streaming/revenue/official viewership would be higher.

~~~
CamperBob2
Stand by for a deluge of replies explaining exactly how HBO is making more
money by refusing to take peoples' money.

I know, I know, I don't get it either.

~~~
henrikschroder
That's because the cable bundling agreements they have make them obscene
amounts of money. Those people are overpaying for the service, and that makes
them more money than opening up HBO Go would.

It's not hard to understand, they're not idiots at HBO, they crunched the
numbers and figured out how to get the most money.

In the future, there will be a tipping point when enough people have tired of
"cable teevee" that the numbers will fall the other way, and when that
happens, they'll leave the cable companies behind and push as hard as they can
on HBO Go globally. They're already testing the waters and rolling out the
infrastructure for it.

~~~
Goronmon
>Those people are overpaying for the service, and that makes them more money
than opening up HBO Go would.

You and HBO are assuming that the number of people who would join HBO Go
without a cable subscription isn't going to be greater than the number of
people who would drop cable to just get HBO Go. It's just a guess.

~~~
henrikschroder
It's not about number of people, it's about how much money they're getting
from each.

A cable subscriber is worth a lot more than an HBO Go subscriber, since they
get kickbacks from the cable companies, they are cheaper to acquire, since
they get a lot of free advertising through the cable companies, and they are
less likely to cancel, since it's harder to cancel an entire cable package.

So it's not a 1:1 relationship between cable customers and HBO Go customers.
They need to acquire several Go customers to make up for each lost cable
customer. But cable is shrinking, and streaming is growing, and at some point
the scales will tip. However, they have to be damn sure that it has tipped,
and that they can sustain their current revenues, so they will probably be a
bit cautious and conservative, and let their cable-only deal stick around a
bit longer. This might not be what you want, but such is life.

(Or you could move to any Nordic country and enjoy HBO Nordic, which is HBO
Go, but without the cable subscription requirement.)

------
mikegreco
Netflix competing against HBO will be great, especially when HBO separates
itself from its current model of being a cable add-on. Lilyhammer (Netflix)
and Game of Thrones (HBO) are two of the best shows being produced right now,
not to mention all of the other great original content both have provided.
Mainstream TV is not at all compelling in comparison.

------
philipwalton
<rant>

Netflix _really_ needs to implement an offline mode for its mobile apps.

The vast majority of the times I'm watching something on my phone, I don't
have a WiFi connection or the connection is too slow to stream an HD video
(like on a plane, at the gym, in a car, etc.)

I'd love to be able to download something at my home and watch it in offline
mode later. Both Rdio and Spotify do this for music. Why doesn't any video
services do it? Are you listening Netflix?

</rant>

~~~
hcarvalhoalves
> Why doesn't any video services do it?

Licensing issues.

~~~
philipwalton
I don't think so. The same issues would be there for music, but those apps all
offer it.

As long as you can only watch it from within their app (so they can keep
stats), it shouldn't matter whether it's online or offline.

~~~
filmgirlcw
It's absolutely licensing.

When content is licensed, there are different licenses that are distributed
based on who pays and what the service is:

* First-run -- you get to broadcast it first * Syndication -- you get to broadcast second * Digital -- you can also show the product on a digital platform (this was how Netflix was able to do their loophole with Starz back in the day, Starz sold the digital license and streaming license to Netflix because the content owners hadn't specified that such a license was unable to be resold or relicensed -- that' since changed and now it's an extra fee if you want to do that like EPIX does) * Digital streaming -- can be streamed but not watched offline * Rental -- traditionally DVD/Blu-ray * Digital rental -- iTunes, Vudu, Amazon, etc. -- includes offline

Netflix would have to pay significantly more for its content to offer an
offline mode. Even HBO, who owns most of its original content -- doesn't do
offline because again, the costs would be exorbitant.

EDIT: To be clear I'm not being all-inclusive, as JFB points out below me,
there are even nuttier licensing schemes too. And this is before we even talk
about international, where you typically have different agreements with every.
single. territory.

~~~
jfb
There are more and crazier ones: exclusive windows for airplanes, hotel PPV,
&c.

When you're frustrated by some lacuna in a video service's offering, 99% of
the time the feature is missing, the reason is "licensing". Content ownership
is going to devolve into small offices of tens of attorneys and support staff,
managing these licensing deals. Universal Studios et al will simply be
licensees of _Jaws_ properties for their theme parks.

~~~
gamblor956
Content ownership is _already_ small offices of attorneys and support staff.
Most major IPs are actually owned by small production companies. These
production companies are in turn generally wholly or partially owned by the
major movie studios.

It's done this way for financial bookkeeping, legal liability, and tax
structuring reasons. This type of setup is more popularly known as "Hollywood
Accounting" and is the reason why a movie can make hundreds of millions but
still yield a "loss." (The studio acts as a distributor and is payed a
distribution fee; the IP owning company receives royalties; the production
company that actually writes the checks for expenses gets its cut "last" after
the income has been redirected to various other entities.)

------
dhughes
I've battled with Netflix many times. Its Canadian content is a joke, compared
to what's available in the US I can't imagine why anyone would stay with
Netflix Canada for more than a month.

Yes I've tried various VPNs and it's far better but I don't like the layout
they changed it since I had used it the first time.

The biggest problem is the bizarre customer service which seems to be very
amateurish. I was billed twice per month somehow they got approval to bill my
credit card again, same address same person - me, without me giving approval.
And it was a battle to get the representative to understand that was a
problem.

The representative said she couldn't refund multiple months but I asked how
they could take multiple months but not refund it! After some arguing (very
unprofessional) she agreed to refund two months.

I asked her to cancel my account and she asked me why! Jesus Christ why do you
think! You bill me twice, no approval, you drag your feet to refund my money
you took and then are surprised when I want to cancel my account.

The concept is great better than MythTV, torrent or anything I could get
working but their billing and customer service absolutely sucks!

~~~
protomyth
Isn't part of the problem the Canadian content laws?

~~~
winthrowe
I don't think that's as large a problem as preexisting exclusive content
contracts with incumbent networks.

------
malkia
My wish is NetBO = NetFlix + HBO - then I can forget about cable provider. But
as others are pointing out - it would be bad for competition.

~~~
CamperBob2
HBO has a bullheaded insistence on distribution through cable operators,
though. I can watch Netflix without a cable connection but HBO actively
refuses to even think about an Internet-only subscriber model.

It's reminiscent of Sony's attempt to keep their content studios and product
groups under the same tent. Any company whose business model is based on
running unstoppable forces into immovable objects is always going to be at a
competitive disadvantage in the long term. HBO just hasn't figured that out
yet.

~~~
lotso
> HBO actively refuses to even think about an Internet-only subscriber model.

And you know this how? I'm pretty sure the execs at HBO have run the numbers.

Why HBO Can't Afford To Offer A Stand-Alone Streaming Service
[http://www.forbes.com/sites/erikkain/2012/05/11/why-hbo-
cant...](http://www.forbes.com/sites/erikkain/2012/05/11/why-hbo-cant-afford-
to-offer-a-stand-alone-streaming-service/)

~~~
CamperBob2
I know it because I actually read the article you linked to.

Funny, Netflix seems to 'afford' it just fine.

~~~
dangrossman
If HBO were to go internet-only, it'd lose the major cable operators heavily
promoting them for free. They only market premium channels so hard because it
helps sell expensive cable TV service. HBO would lose subscribers immediately
as operators no longer actively replace subscribers for them as others churn
out.

To make up for the lost stream of customer acquisition, they'd have to:

a) Cut prices by more than 50% to become competitive with Netflix/Hulu. This
will cost them billions a year.

b) Increase their catalog size significantly, which would cost billions a
year.

To give you an idea of the costs of licensing, HBO's last major deal was with
Universal studios and cost them over $2 billion for access to their future
movie catalog.

It's hard to come up with a scenario where cutting their exclusive tie with
cable makes sense financially _right now_. It's not "bullheaded" to say "no,
we shouldn't throw away $10+bn/year to give Bob his internet subscription
while we're in the midst of a death battle for the future of digital
entertainment distribution".

Netflix can do it because (a) they have a big catalog and low prices to entice
subscribers with, (b) they got much of their catalog on the cheap before
studios fully understood its value; this perk is going away as licenses renew,
(c) it has no choice. Whether Netflix can grow its original content business
within the constraints of its low subscription price faster than its licensing
costs get out of hand is still up in the air.

~~~
CamperBob2
_HBO would lose subscribers immediately as operators no longer actively
replace subscribers for them as others churn out._

But that's going to happen -- and is happening -- anyway.

 _"no, we shouldn't throw away $10+bn/year to give Bob his internet
subscription while we're in the midst of a death battle for the future of
digital entertainment distribution"._

"What? A _phone_ that plays music?! Are you crazy? Do you realize how much
money iPods brought to this company last year?"

~~~
jacques_chester
This is a poor analogy. The net profit on an iPhone is higher than the net
profit on an iPod.

~~~
CamperBob2
And the net profit on a diamond necklace is higher than either. I'm not sure
what point you're making.

Apple didn't build the iPhone because it was profitable. They built it because
they knew that a race was about to begin, in which second place was really
going to suck. HBO is faced with the same reality, whether they believe it or
not.

~~~
jacques_chester
The point I'm making is that by introducing the iPhone, Apple didn't lose out
by cannibalising iPod sales.

Whereas if HBO changes models, it will cannibalise the existing business model
at a net loss to the business overall.

So the analogy with Apple's introduction of the iPhone is not relevant.

~~~
CamperBob2
And the point _I'm_ making is that the choice wasn't really theirs. Either
they were going to sell the most profitable smartphones, or somebody else was
going to.

Let's take a look at subscriber growth on Netflix versus HBO over the next few
years, and resume the discussion then. As RIM learned, the first few
derivatives of that number are _important_.

~~~
jacques_chester
Perhaps you've forgotten how perfectly awful smart phones were before the
iPhone.

The original pitch was never "check out these amazing apps". There _were_ no
apps. People's minds were blown by the fact that you could get a non-hideous
phone with a UI not assembled by two troupes of rival chimpanzees.

------
k4st
This is not so much constructive, but more a comment on my Netflix viewing
habits and opinions on three shows which they've created:

I really enjoyed House of Cards. Lilyhammer was pleasantly surprising and I'm
looking forward to future seasons. I recently tried watching Hemlock Grove and
that was awful. I'm sceptical of Arrested Development: I loved the original,
but it's been a long time and I feel like it's time to move on.

Otherwise, I find Netflix to be attractive in cycles. Every now and then, I
will discover a bunch of new things (be it movies or TV shows) and binge watch
them, and then I feel like there nothing left on Netflix. I keep paying on
"down periods" because I like there is a sense of security because I have a
high quality / stable streaming service available to me. Then, after a few
weeks, I eventually return to Netflix for more binge viewing.

------
mohamedzahid
"HBO’s figure dates to the end of 2012, but it’s unlikely to have grown much
in the first three months of 2013, owing as much to the cable TV industry’s
stagnation as its own trouble signing up new subscribers."

How the hell do they know this? Girls and Game of Thrones have been huge hits
and an equally strong argument could be made that thanks to these two shows
alone HBO is well over 30 million subscribers, hence having a larger
viewership than Netflix. Pretty irresponsible imo to base an entire article
and make a factual statement in the headline based on a hunch.

------
quaunaut
I keep seeing qz.com linked here: Is there a bloody reason that the page
doesn't go completely to the right side, so I can use my bloody mousewheel
without my mouse being over the content?

~~~
donohoe
Browser & OS plz

~~~
veb
OS X and Safari. I have the same problem. Annoying.

~~~
dirkgently
May be a more, er, modern browser may do the trick?

------
yoshizar
The number of subscribers seems to be a total apples to oranges comparison,
given the extremely different channels Netflix and HBO get customers.

If I could pay Netflix prices for HBO Go, I would do it in a heartbeat. But
there's no way I'm going to buy a TV and pay +$100/month for cable to become
an HBO subscriber.

Because of their different business models, you'd think that the only metric
they should be measured on is revenue vs. revenue. To compare subscribers
seems like sensationalism and poor logic.

------
baby
I just bought a Netflix plan and am using it in France (through a plugin). I
don't know if it's illegal but it is really really good. I actually really
hope this is going to keep working and that Netflix is not going to fix this.

If I had the people and the skill I would try to launch such a startup in
France. I have no idea why there is no equivalent, it's a promised success.

~~~
pfg
I think it would be really hard to start something like Netflix as a startup
in Europe. The content licensing structure is quite a mess (which is probably
one of the reasons why Netflix isn't available yet (with some exceptions in
Scandinavia)).

------
dombili
I feel like comparing these two is sort of like comparing Android vs iOS, am I
wrong?

Netflix has more subscribers because it's cheaper. HBO on the other hand has
less subscribers, but I'm guessing that they make more profit than Netflix. At
the end of the day, it depends on which one you think is more important. More
profits or more subscribers?

------
cyanbane
_"HBO’s figure dates to the end of 2012, but it’s unlikely to have grown much
in the first three months of 2013, owing as much to the cable TV industry’s
stagnation as its own trouble signing up new subscribers."_

I wonder how many people are like me and only pay for the months in which Game
of Thrones is on (Q2 so far)?

~~~
filmgirlcw
LOTS. That's why they typically try to program hits like GoT and True Blood
back to back so they can get you for six months.

HBO hovers between 27 and 33m depending on the quarter.

------
blantonl
Apple has $100b+ cash on hand. From a strategic perspective, Apple really
needs to give a hard look at Netflix.

~~~
r00fus
How long would Netflix's contracts last if it was Apple (huge threat to media
companies) who owned them?

Netflix has already lost some of it's content because they were deemed too big
of threat to the content provider's main business (e.g.: Starz [1])... I only
imagine this problem would magnify 100x if Netflix were owned by Apple.

[1]
[http://money.cnn.com/2012/02/29/technology/netflix_starz/ind...](http://money.cnn.com/2012/02/29/technology/netflix_starz/index.htm)

~~~
dublinben
Could the studios really afford to cut out Apple and the iTunes store? They
probably control most of the digital market.

------
jebblue
Netflix deserves it. With them for movies and free HT OTA TV we are 100% cable
free. If only they ran in my Chrome browser on Ubuntu like Crackle does.

------
shmerl
Is it good or bad? Both are strong DRM proponents. Where are DRM free
alternatives?

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rmm
There is currently a massive short squeeze occurring with Netflix stock.

