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Netflix Looks to Move Up the Value Chain as Viewership Rises

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July 09, 2012

Netflix Looks to Move Up the Value Chain as Viewership Rises

By Mae Kowalke
TMCnet Contributor

Is Netflix taking a page from the playbook of HBO and Showtime? That’s the question some analysts asked, as Netflix announced last Tuesday that its subscribers watched more than one billion hours of video over the course of June, more than an hour a day per subscriber.

Right now, Netflix is a low-margin budget option with its $7.99 streaming service mostly offering old programming from cable and broadcast networks, pointed out Ryan Lawler in a Seeking Alpha blog entry. That’s how companies such as HBO and AMC began, too, only to work their way up the value chain with original content.

Which is exactly what Netflix and other streaming juggernauts are doing, Lawler noted. The company is betting on original programming that includes new episodes of the cult favorite Arrested Developed, Kevin Spacey and David Fincher's House of Cards, Orange (News - Alert) Is The New Black, from Weeds creator Jenji Kohan, and Eli Roth original horror series, Hemlock Grove.

YouTube and Hulu are doing the same. YouTube is developing and promoting more than 100 original channels, and Hulu (News - Alert) is investing heavily in original content with the hopes of becoming less dependent on broadcast networks, Lawler said.

Netflix and other online streaming providers could eventually become credible competition for cable TV or even the dominant players if cable television doesn’t get its act together, he noted. The move to streaming television is inevitable, and there’s still time for upstarts to out-maneuver the incumbents.

“There's opportunity for massive disruption and [I] believe it's only a matter of time before the guys like Netflix actually start eating into primetime viewing,” Lawler wrote.

Netflix already is showing signs of future disruption, noted Don Reisinger at SlashGear. It is offering all the episodes of its shows at launch so viewers don’t have to wait to watch the next episode of a series they’ve discovered.

“It’s brilliant,” Reisinger commented. “Granted, Netflix doesn’t have to keep a schedule, but with so many networks realizing streaming is the future, why haven’t they followed Netflix’s lead, taken a chance, and offered an entire series at one time?”

There’s still time, but cable networks have been slow to adapt, Lawler noted. Cable networks are fighting back, especially with TV Everywhere offerings, but he suggests that only HBO Go has gotten it right, and most TV Everywhere services are slow in rolling out. This gives services such as Netflix time to win the original programming game online—or at least take a sizable chunk—before cable operators can respond.

Also, cable companies are “kind of constrained in what they can do about that given the way deals are done with the networks,” Lawler noted. “Some are experimenting with lower-priced packages of content, but for the most part, their game has been to ‘add value’ to the existing package.”

Adding value to existing packages doesn’t win the new network war for dominance, however.

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Edited by Brooke Neuman

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