When Netflix (NFLX) released Arrested Development all at once for its customers, it ushered a new way of consuming TV episodes. The idea of releasing all episodes has been in its infancy, with Netflix previously releasing all of House of Cards with great success to its 36 million user base, and production for Season 2 is beginning.
The New age
Talk of the new age in television is a theme that is nothing new. It happened with railways, automobiles, computers, and mobile phones. By providing original programming, Netflix does not have such an edge over traditional cable companies that cable companies will need to worry. The company needs to contain costs associated with buying the content, and look for ways to make subscription revenues exceed content costs. House of Cards did not make the top TV list on the Writer’s Guild of America (“WGA”). By contrast, HBO has several shows on the WGA top 50.
Family Plans for Multiple Access
In April, Netflix said it would allow four simultaneous streams available through a family plan. The monthly plan is $11.99. The regular plan is $7.99 per month. There are no cable services that match the Netflix offering.
Amazon (AMZN) is the biggest competition for Netflix. The online retailer offers content through Amazon Prime. Amazon plans to produce 5 out of 14 original shows it is piloting, such as Alpha House, Betas, and Annebots.
Last year, Amazon cancelled its $7.99 monthly test plan after just two weeks, which would have matched the Netflix offering. The company realized ahead of the holiday season that shipping costs supporting Amazon Prime services would not be profitable for the company.
Telecom Companies Compared:
(From left to right: Verizon, AT&T, Nippon Telegraph, Telefonica, and France Telecom)
Another challenge for Netflix is the growing cost of buying content. The funds available to grow content will be a function of the subscriber growth rate multiplied by the monthly revenue.
Television cable companies may lose subscribers to Netflix and Amazon over the short run, but will find ways to improve the quality of programming served to their customers. Netflix releases a TV series all at once; giving little room for error should the show receive poor reception. Conversely, broadcasters have more operating room to cancel or modify a series as needed.
The disruption in television by online streaming providers is real, but the impact of the threat is minimal for now. Either way, the consumer wins because more choices are created and the need for better, quality content rises.
Written by Chris Lau
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