HBO: No to Netflix

12:45 PM -- Netflix Inc. (Nasdaq: NFLX)'s sprint into the premium TV category may hit a snag if it thinks it has the chops to score a deal with HBO and gain access to the latest episodes of such popular original series as True Blood.

It appears unlikely that HBO would want to upset its traditional cable, telco, and satellite affiliates by playing ball with Netflix, which is causing a ruckus with a new Internet-only video-on-demand (VoD) deal with new premium programmer EPIX, which follows Netflix's earlier agreement with Starz Entertainment LLC . EPIX, for its part, is trying not to ruffle too many cable feathers, by preventing Netflix from offering new movies until 90 days after they debut on EPIX's linear channel. (See Netflix-EPIX Deal Puts Pressure on Cable .)

HBO, which is part of Time Warner Inc. (NYSE: TWX), appears more comfortable appeasing its affiliate masters using TV Everywhere strategies that extend subscription services to the online world via operator-controlled video hubs or Websites operated by the programmers themselves. HBO, for example, is authenticating its subscribers via its "HBO Go" service. (See Verizon Gets First Taste of 'HBO GO' Portal .)

"There is value in exclusivity," HBO co-president Eric Kessler told Bloomberg, adding that consumers "are willing to pay a premium for high quality, exclusive content."

But, despite Kessler's reluctance, Netflix is interested in having a dialogue. "We would love to do a deal as well with HBO," Netflix spokesman Steve Swasey told the news outlet.

Unless it can change HBO's mind with an offer it can't refuse, Netflix and its customers will have to be content with renting out DVDs of past seasons of HBO's series.

— Jeff Baumgartner, Site Editor, Light Reading Cable

Cooper10 12/5/2012 | 4:26:30 PM
re: HBO: No to Netflix

Would expect that Showtime would likely take a similar path on their studio deals and original series.  Starz rationale for licensing content to Netflix increasingly appears to be a questionable decision, and one that will make their next deal renewals with pay TV distributors a difficult negotiation at best. 

Netflix is clearly trying to make inroads into the traditional premium TV exhibition window and compete with premium networks, and as a result, they should expect that the premium networks will make it increasingly more difficult  (and expensive)for Netflix to obtain content.

Netflix has thrived to date by exploiting the first sale doctrine with DVDs, and licensing library content for streaming without a lot of competition for licensing rights.  As they expand into traditional premium content as well as a more formidable competitor to pay TV w/ TV series content, the competition for content gets considerably tougher.

rjmcmahon 12/5/2012 | 4:26:28 PM
re: HBO: No to Netflix

re: "There is value in exclusivity," HBO co-president Eric Kessler told Bloomberg, adding that consumers "are willing to pay a premium for high quality, exclusive content."

Mr. Kessler almost got it right.  What really is happening is that since consumers aren't willing to pay HBO directly and honor their licensing requirements for their non-rivalrous, intellectual properties, HBO is asking the distributor to use infrastructure exclusion in order enforce those licenses as well as to extract payments then, in turn negotiating revenue share with their distributors.  How hard (not to mention cost effective) would it be for HBO to put up some servers and let folks download these products directly? 

This type of "solution" for the selling of information products distorts the price signaling where neither the bit distributor nor the content producer have a real idea of the "value" they've created.  It also acts as a disincentive for investment into efficient, multi-modal, information distribution infrastructures which in turn makes us all the lesser.

Jeff Baumgartner 12/5/2012 | 4:26:28 PM
re: HBO: No to Netflix

I don't think it would be hard, technically speaking, for HBO to just go direct as you suggest. Although TW and TWC are now spun off from each other and supposedly independent, it would seem that HBO is still trying to protect cable MSO interests with its stance on this one so far.

Suppose it could be argued that HBO is also interested in protecting its subscription base and the margins it gets via the traditional way of business with cable/telco/satellite affiliates.   Starz claims its netflix strategy hasn't cannibalized its sub base yet, but it's still too early to draw any firm conclusions whether that will continue on into the future as more consumers go to broadbnd to handle their video needs. 


rjmcmahon 12/5/2012 | 4:26:27 PM
re: HBO: No to Netflix

I'd word it a bit differently in that HBO doesn't have an interest in the MSO other than demanding that the MSO enforce its broadcast/copyright licenses.  The MSO does this per its monopoly control over the COAX broadcast video network combined with regulatory capture (e.g. the lack of FCC or state PUC imposition of public interests obligations on that network) and society's blind ideological belief in privatization even in the face of its obvious failure.  The network is a monopoly, not because its explicitly granted by the state, but rather per the economics (large the sunk costs with diffused beneficiaries) meaning there is going to be effectively a single provider.  Like it or not, this is where we'll be eventually and we're far along that path.

Now if we as consumers who desire HBO and others' content honored their licenses and did so through our own behaviors that would get rid of the need for the MSO to act as the "rights/exclusion" enforcer.  Instead exclusion or not would be determined by payment (or not) to HBO and HBO could set prices in a myriad of ways.  Sadly, since the vast majority of our society does not honor intellectual property rights the interim solution is a DRM technology, preferrably one written to an open standard (lest the DRM "monopolist" wrest content pricing control away from the content producers.)

And that's only 1/2 of the problem (being payment to producers.)  The second is the natural monopoly characteristics of multi-modal networks, dominated by the access networks.  To get around that we'll have to bring back the state.  The longer we wait not only the more time and money we waste, but the longer the pain associated with the lack of a viable economic recovery as that recovery really is based upon building new knowledge based industries, along with the infrastructure needed for those industries, of which an efficient, multi-modal, digital network is the backbone.

per Noam:  What seems to be emerging now is a communications system with a central network provider, surrounded by smaller infrastructure and applications providers. The central provider, by dint of its size and significance, will increasingly be treated as a form of utility. This role will lead to calls for policies that resemble the demands traditionally made of public utilities, such as that it provide: universal service, interconnection, and structural separation, as well as supporting industrial policy etc. The signs for such a shift are everywhere, and we must connect the dots to recognise the broader dynamics.

DCITDave 12/5/2012 | 4:26:26 PM
re: HBO: No to Netflix

Netflix is still a pretty amazing service.

Hey rjmcmahon, would you prefer that the phone, cable, and wireless networks be state/federally run/owned and then let dozens of companies compete to provide services?

I'm no economist but I've often wondered is such a model would make consumer choice improve or just kill the economics of IPTV for everyone. Interested to get your thoughts.

The point you make about natural monopolies is one we tend to overlook. These companies simply wouldn't be where they are if they had been in a competitive environment from the start. Sure, they whine about competition now, but most network providers enjoyed DECADES of weak or no competition. Most of it taxpayer funded.

You're welcome, phone companies.

rjmcmahon 12/5/2012 | 4:26:23 PM
re: HBO: No to Netflix

I'm not overly concerned with who owns the infrastructure, be it funded via public municipal revenue bonds or private equities (though I think the former is most optimal), but what I think needs to and will happen is that much more stringent public service obligations will be imposed.  This will occur when the networks move from being something that provides entertainment (which is where the status quo tends to focus today) to something necessary for industry and utility and hence industrial policy will begin to dominate political actors.  It's kinda like the days when "what's good for GM is good for the country."

I see this happening more and more as things like education servces are now being delivered over the internet.  I've also noitced more sensors and control (smart meters, etc.) and many other things that aren't related to HBO and entertainment.   There will be a tipping point when society says, "Hey wait a minute, these networks are critical not only to my pirating, but also to my job and job creation for my children, as well as to everyday vital functions."  At this point public interest obligations will be back in play.

On Demand Weekly 12/5/2012 | 4:26:19 PM
re: HBO: No to Netflix

Agreed. Why take a chance to upset the apple cart when a network like HBO is on top and consumers continue to subscribe?


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