Netflix vs. Cable/Media Industry

Is there a war between Netflix and the cable/media industry? It’s obvious that Netflix is a major competitor to the industry but I didn’t know the detailed issues between the two entities until I read “Time Warner Views Netflix as a Fading Star” by Tim Arango. The success of Netflix has angered the cable and media industry. The opening of the article spells it out:

“For the past year, executives at big media companies have watched Netflix with growing resentment — for its success in delivering movies and television shows via the Internet, for its stock price nearly quadrupling, for its chief executive being named businessperson of the year by Fortune magazine.”

When Netflix came out, it was great for media companies as the consumption of mailed DVDs lead to the purchase of them. At the time, DVDs was a major revenue stream for the movie industry. Now, Netflix is streaming media content at a low price, which translates into very low revenue for the companies who license the content.

The cable industry is incensed because many people are choosing to opt out of cable, leading many to suspect content streaming is to blame. While the “cable opt out” or “cord-cutting” can be attributed to networks that provide online episodes, Hulu, and Netflix, all of the anger is solely targeting Netflix. Arango did point out that Netflix was able to get licensing deals at great prices, including a $25 million a year deal with Starz, well below the price the cable industry pays. This also leads the industry, including CEO of Time Warner Jeffrey Bewkes, to believe that Netflix was given an unfair advantage.

“Mr. Bewkes said that deal, which gave Netflix significant momentum into the new world of online video, potentially undermined the business model of cable television, based on the subscription fees that have steadily flowed even as other media businesses have suffered in the digital age”

Unfortunately, the progression of the digital age has allowed for content to be streamed online. Consumers are naturally going to look for quality, quantity, and great price. Meaning that where they can watch their usual programs and movies for the lowest price in the market, they will go. Netflix has decided to respond to this digital evolution and consumer demand by deciding to offer Internet streamed content. Ted Sarandos, chief content officer of Netflix stated this shift “toward ‘on demand, instant gratification video’” has compelled “Netflix [to become] the leader in that space”.

 The cable and media industry is acting as if Netflix is making every business decision based on ways to screw the industry. Netflix makes decisions based on profit and consumer demand. The company is forcing the industry to think in line with their consumers. After all, one of the points mentioned about consumer demand is quantity, which the cable industry has over Netflix. Therefore, instead of loathing Netflix, the industry should harness this advantage and create more innovative ways to bring that quantity to their subscribers. In the end of the article, Arango mentioned Time Warner is working on “TV Everywhere, whose idea is to offer cable network programming online for anyone who is a verified cable subscriber.” But, for the majority of the article, Bewkes represented Time Warner as a jealous sore loser.

Netflix is not the only reason for the “cable opt out” phenomenon.  The cable and media industry needs to remember: this is still the digital age, the economy isn’t great, and not everyone uses all of the channels a cable subscription gives. The industry needs to either accept the challenging competition and beat Netflix at its own game or stay quiet. 

Note: The green highlighted sentences/ words are the links. The company links go to their Crunchbase profile.