Why HBO's New Standalone Web Product Isn't Going To Hurt Netflix

Reed Hastings Sun Valley Getty / Scott OlsonNetflix CEO Reed Hastings

HBO announced plans to launch a standalone web service similar to Netflix.

For now, there are few details. We don’t know price, movie selection, or timing, other than the fact that it will be out in 2015.

This has been a long time coming. HBOGO, HBO’s web service is wildly popular, and people share passwords just to use it. HBO says it plans to target those people that aren’t cable subscribers with this service.

There are two immediate, incorrect snap reactions to this news.

1. Netflix is screwed.

2. Cable (pay-TV) is screwed.

Both reactions are wrong. Netflix will be fine. And cable will be fine.

In fact, the future of TV looks incredibly similar to the current model of TV, which will depress a lot of people who were hoping for a more radical, low-cost future.

1. Netflix and HBO can happily co-exist.

Jeff BewkesKevork Djansezian/Getty ImagesTime Warner CEO Jeff Bewkes. Time Warner owns HBO.

They offer similar services, but they each offer something unique. You can’t see House of Cards unless you subscribe to Netflix. You can’t see Game of Thrones unless you subscribe to HBO. If you want to watch those shows, then you’re going to subscribe to both services.

Earlier this year, Netflix CEO Reed Hastings talked about his primary competition. At the time, he was being asked about Amazon, which had just struck a deal to stream HBO shows. He didn’t dismiss Amazon, but he did say, “In general, we continue to believe that our biggest long-term competitor for entertainment time remains the MVPDs improving through TV Everywhere, as they are doing with HBO Go.”

Netflix’s main competition is not a series of standalone web video services like Netflix, although, that could be problematic in the long run. Its main competition is the grand bundle of TV you already get. The stuff you get from your current cable company is significantly better than what Netflix offers, although it’s more expensive.

As Hastings notes, if the cable companies can deliver their shows in a smart, on-demand, web-based way that makes people happy, it makes subscribing to Netflix less necessary.

2. Cable is not screwed.

Almost every single cable company offers internet access, so if everyone bails on cable TV for HBO and Netflix, then the cable companies will just jack up their internet rates.

But that’s not going to happen, not any time soon, anyway. Pay TV is still a pretty great value for the most part. Comcast offers the internet plus TV for prices between $US50 and $US100+ per month depending on the speed of your internet and how many channels you get. Internet only packages start at $US40 and go up to $US90 per month.

If you want to cut the cord, and skip TV, but you still want to subscribe to Netflix and HBO you’ll save some money, but not much. It starts to add up.

Netflix costs $US8/month. HBO costs $US20/month with a cable subscription, and we expect it will cost the same as a standalone product. That’s $US28 right there. If you want more and more TV services, it’s going to cost $US8-$US10, or more for web-based alternative.

And if you want sports through the internet like MLB, you’re paying over $US100 per year. You can get the NFL through DirecTV but it’s over $US200 per year.

As the dollars stack up, you might realise you’re better off just getting cable TV, which is actually pretty great technology! It works almost every time you turn it on and you don’t even have to make a decision about what to watch, there’s just stuff playing.

Internet-based TV is still a clunky mess of app-like interfaces. Cable TV, for all its faults, is still pretty nice.

In the long run, is pay TV as we currently know it screwed? Maybe. If Netflix, HBO, ESPN, YouTube, and other companies start breaking up the cable model, then maybe we’ll get some new version of TV.

But in the short run, it looks like the future of TV is not that dissimilar from the current version of TV. One channel pays for shows, then charges you to see all of the shows it pays for.

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