Reed Hastings this week again reiterated that, despite the fact that Netflix now has more subscribers than the largest U.S. PayTV operator, he did not wish to take on cable TV companies. Speaking to Chris Anderson, Wired Magazine's editor-in-chief, Hastings noted that the company had no desire to provide live or even current content, as it was simply too expensive to procure. Moreover, Netflix would not survive a head-to-head battle with cable, which he described as "Armageddon." Instead, he positioned Netflix as a niche offering, "not too big, not too small."
Nice try, Reed, but the truth is Netflix is competing with cable for consumer dollars. As I first predicted two years ago, HBO and Netflix have become head-on competitors with similar content libraries and business models. The large price difference between HBO (typically $17 or more a month) and Netflix ($8 a month) is largely attributable to the fact that cable takes a substantial cut of the HBO subscription price. If a consumer switches from HBO to Netflix, that revenue vanishes from cable's bottom line. Last year, 1.6 million PayTV subscribers dumped HBO while seven million signed up for Netflix.
So while Reed Hastings works hard to soothe the ire of cable, he's working just as hard to pick their pocket. And here we see the classic role that Internet distribution has come to fulfill: it cuts out the middleman and delivers the same services for less. The uncomfortable fact is that, in this case, cable is the middleman.
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