If It’s Netflix Versus Cable, The MSOs Have Won

Dave Zatz —  June 15, 2011 — 20 Comments

Netflix Shipping Center

GigaOm has proclaimed that Netflix streaming and the cable industry are clearly in competition – vying for the same eyeballs and the same dollars. Yet, I’m not seeing it. Sure, there’s some overlap… of on-demand television content and back catalog films. But amongst the vast majority of my peers, and within my household, Netflix provides suplemental entertainment. And most of us choose to carry on with pay television services. We may bitch and moan about price hikes, billing problems, or customer service letdowns. But premium television remains quite compelling. Without live news, sports, or current, first run movies Netflix will remain largely a supplemental service. Netflix knows this. In fact, the GigaOm crew cites CEO Reed Hastings regarding the cord cutting mythos, “It’s not happening, it’s not anything we are causing, cable and Netflix are complementary.”

As evidence, GigaOm suggests that cable companies RCN and Suddenlink neutered their TiVo deployments by removing the Netflix app: “The logic? Netflix could get people to ditch their premium channels and ignore cable VOD.” However, RCN is very clearly on the record in its desire to offer Netflix streaming and Suddenlink is would “gladly” consider it. This is purely a licensing issue involving Netflix, TiVo, distributors, and studios. Rather than threatened MSOs blocking the (perceived) competition. Amazon Video on Demand, of course, is another story entirely.

As for me, I’m streaming very little Netflix these days. I’ve either already seen the content or just don’t find it compelling. In fact, between Amazon Prime, Hulu Plus, and HBOGo, I’m considering dropping Netflix altogether. Unless, I upgrade to more (Blu-ray) discs per month – reverting back to physical media to catch newer releases at bargain prices.

20 responses to If It’s Netflix Versus Cable, The MSOs Have Won

  1. While the possible “battle” is young, we didn’t even touch on profit/cash. I suspect the cable and satellite companies are orders of magnitude larger and more profitable than Netflix.

  2. We’re also using much less streaming from Netflix. We lean more toward Amazon downloads to our pair of TivoHD devices.

    We still have a Tivo Premiere that we’ve yet to activate. Haven’t taken the time to go fetch another cable card. Dealing with the CableCo is always such a hassle. Activating cable cards especially. In both prior attempts it took a week or more, in fact WEEKS, to get it working correctly.

    I wonder if the Tivo Premiere will eventually alter our usage/viewing habits? We look forward to having access to Comcast’s PPV.

  3. It costs more for Internet alone than Internet and Cable. I did downgrade our cable service when I got a roku and we pretty much watch Netflix exclusively aside from the occasional tivo’d Simpsons or Friends rerun. Most everyone I talk to has this need to watch content while it’s fresh; though I have no problem waiting till shows and movies filter into Netflix availability. There are hundreds of things in both my queues to work through, so it’s not worth $100 more every month to get access to content that will be around when i have time to watch it later.

    Also, can’t believe Netflix doesn’t have a recommendations from friends feature.

  4. The Netflix implementation on TiVo is the weakest of all devices out there, which isn’t surprising since TiVo’s was the first implemented and hasn’t been updated since. The current implementation isn’t a competitor for anyone.

    I’ve switched to using the PS3 which gets 1080p video with 5.1 audio and CC. That’s more of a competitor, but without the ability to stream recent movies and TV shows Netflix can’t compete with cable. Netflix’s disk plans are dying a slow death as Netflix doesn’t buy enough disks to handle the demand. I frequently can’t get new releases for several months after they come to Netflix, which is usually a month after they are released. Some movies are still have “very long” delays 6 months after release.

    I’m not sure Hulu is a replacement for Netflix. I still don’t like paying to see ads. Amazon Prime might be, but that’s not available via TiVo (works on Roku though).

  5. Hm, I didn’t know about the disc delays. We’ve got several Red Boxes in the neighborhood. But the Blu-ray selection is extremely limited and I think only movies (versus television shows). The Hulu Plus ads don’t bother me so much – their aren’t many and they’re short. It’s much better than say Basic Cable, which I also pay for…

  6. “If It’s Netflix Versus Cable, The MSOs Have Won”

    Well, look, this is so obvious that it goes without saying, but it’s too obvious not to say.

    You get both cable and Netflix from the same damn wire sold by the same damn wireline provider.

    Of course the wireline provider wins. They’re selling you the wire, usually under monopoly marketplace considerations.

    If everyone cancelled cable tomorrow and went to all OTT, then bandwidth caps would immediately appear, and you’d still be paying your wireline provider for your video. The prospect of a well-regulated OTT free market does seem to offer customers greater potential flexibility in picking and choosing services, and greater flexibility is always a win for customers.

    But let’s not kid ourselves. Unless you want to do the USPS/Physical Media thing Dave mentions at the end of his post, you’re still going to pay the MSO’s a hefty service charge to bring you content, one way or another.

    (One exception is if you live in a densely populated metro area served by multiple wireline providers, as I do. Then, with the help of a CableCARD and IPTV box not owned by any MSO, I can use the free market in wireline providers to let me win. But most of the US population doesn’t have these options at the moment. Absent a Federal-driven FTTH build-out, the only real solution would be to force the MSO’s to allow “virtual MSO’s” to re-sell their monopoly wire and allow competition into markets with only one wire infrastructure laid.)

  7. “Hm, I didn’t know about the disc delays. We’ve got several Red Boxes in the neighborhood. But the Blu-ray selection is extremely limited and I think only movies (versus television shows).”

    Back in the pre-HD days, I would at times completely cancel my cable TV and rely on OTA and discs.

    My strategy was to subscribe to the max Netflix plan (it was 8 discs back then, dunno about now), so I’d always have something to watch lying around, and to get Just Released titles that I really wanted to see at my local video store.

    And that’s pretty much what I’d suggest to any gourmet video consumer who wanted to completely cancel cable TV now. Get the max Netflix Blu-Ray plan, and rely on Blu-Ray kiosks for Just Released titles.

    But these days, I prefer CableCARD and OTT, for a variety of reasons, but in large part because the Blu-Ray rollout has been so slow to unfold, especially for back catalog titles. A pretty high percentage of what I want to watch is available in HD exclusively from CableCARD, so I’m not interested in being a cord-cutter these days.

  8. Dave,

    What’s the other story with Amazon? Is it considered a direct competitor to MSO’s paid on-demand service? Or is there something else?

  9. “As for me, I’m streaming very little Netflix these days. I’ve either already seen the content or just don’t find it compelling.”

    While I am not necessarily streaming very little from Netflix, I am steaming less. Netflix seems to have adopted the attitude – and many consumers seem to find it compelling – that SD video quality is good enough and that quantity at a low price are the most significant factors. While I am not considering canceling Netflix as it is inexpensive enough to maintain indefinitely, I definitely have come to prefer other streaming services. Vudu, Hulu Plus, Zune and Amazon VoD (albeit with a terrible UI) obviously offer newer content along with superior video/audio quality IMO.

    If Netflix’ desire is only to complement cable/satellite services, I suppose they are succeeding; they certainly do not offer a service that is compelling enough to be anything more.

  10. Gabe/Hub, while the release windows may not be exactly the same I would definitely suspect high def, new release video rental from Amazon would be a threat to MSO VOD revenue. Also, it could be a source of user confusion simply avoided – ‘Do I rent through Amazon, through RCN, through Blockbuster, what is all this?’

  11. Netflix streaming in my house never took off really, but we aren’t the common household either. We record a lot and also back up most of it to the server so we always have a huge library of on demand content I can push/pull to my TiVos.

    It also doesn’t help that Netflix doesn’t have the stuff we usually feel like watching via streaming. As a result I keep the 1 disc out plan and watch more DVDs than I stream, but I watch 10x more recorded content.

  12. GigaOM has decided to hype the shit out of anything that hints at cable cutting/shaving and seems to have no sense of balance about the whole thing. They regularly take data out of context (cable companies are losing customers in droves!!!!! ignoring that most of those customers went to satellite, Verizon or AT&T, that sort of thing) and ignore any data to the contrary. Not to be trusted in this area. Probably not surprising since they have a podcast about the subject I guess but still unimpressive.

    That said, you might be a little in denial yourself. There is clearly SOME inclination among Netflix subscribers to cut back on Pay TV. See for example VideoNuze’s excellent coverage in:

    http://www.videonuze.com/blogs/?2011-06-14%2009:04:44/New-Research-Shows-Netflix-Is-A-Catalyst-for-Cord-Cutting-and-Cord-Shaving/&id=3101

    My guess is the same as Will’s: people only have so many hours a day to spend, and if some of them are spent watching Netflix, then they watch cable less. If they watch cable less, they start feeling like maybe they shouldn’t be subscribing to so many channels. Etc. Not really that different than saying that the hours people spend playing video games or browsing the internet might cause them to cut back on their cable bills. Its all in the mix.

  13. Personally I have given up on physical media entirely, but watch relatively new stuff via Apple TV most of the time these days. I may subscribe to Netflix when that series they just commissioned comes on, but otherwise have little reason to pay for ‘reruns’ with a DVR full of stuff I haven’t got around to watching yet.

  14. “Netflix seems to have adopted the attitude – and many consumers seem to find it compelling – that SD video quality is good enough”

    There’s actually a decent HD selection if you like art house fare. Docs, indies, and foreigns are all in decent supply in HD. That’s mostly what I pay for.

    (And I’ll watch some archival stuff in SD. 480 lines is all you’ll ever get out of The Larry Sanders Show or The Kingdom…)

  15. I always felt it was Netflix vs Blockbuster. Netfix won. Now its Netflix vs. Premium Channels. I predict a dog fight. Clearly the MSOs are preparing for war and building in some greater services / value in their offerings. About time after close to 20 years with basically no competition other than the threat of SatTv

  16. Pardon me for asking: what does “MSO” stand for?

    When I first got Netflix, I streamed fairly regularly but, like you, I hardly stream at all anymore. The content isn’t that compelling. It’s a nice supplement to my Cable TV, especially the disc part but the whole “cutting the cord” thing was overblown.

    As Mark Cuban pointed out, this projection was largely based on the habits of 20-somethings whose behavior will likely change when they become thirty-somethings. Then you just want to turn the doggone thing on and watch something.

    Also, like most starry-eyed projections about our connected future it glossed over bandwidth: both the speed of connections and bandwidth caps, neither of which Netflix has any control over.

  17. MSO stands for Multi System Operator and officially encompasses larger cable operators with multiple regional franchises. However, conceptually, I like to think of it as encompassing all significant cable players, plus satellite and ITPV services.

  18. I could not disagree more. My family has cut the Cable cord just because of Netflix. We just found ourselves watching more and more Netflix and local channels. Add in Hulu Plus and we’re all good here. Didn’t save that much money but I feel better about the choices my kids have.

  19. I just added NETFLIX on the free trial, got it woring on 2 HDTV, xbox 360 and iTouch I love it.

    I just returned to Cox the HD DVR I was renting and dropped all addl channels ex the basic, I was paying $95 pcm for Cox, dropped that to $23, plus Netflix.

    I HAVE dropped Cable and am using Netflix, my only wish is live Sports/Soccer, but NBC/CBS/Fox HD over the air have the big events.

    My 2 teenagers love Netflix and dont miss cable, I hate the ads wasting 60 minutes for a 45 minute show and finding nothing I want to watch on TV, Netflix has so much, should keep us happy for a long time, all whilst saving $700+ per year!.

    Loose cable and buy Netflix I did and it works..

  20. Getting ready to pause Netflix and test whether I can live with free streaming videos via Amazon Prime.

    $150 got me a Panasonic Blu-ray player with built-in streaming of Amazon & other services.

    Netflix only costs a little over $10/month but I don’t think it’s worth it for me.

    Most stuff I watch on the Tivo either from OTA or downloaded (bought) from Amazon.

    Already use Redbox for most recent released DVDs.

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