NETFLIX CEO ON THE TV INDUSTRY: It had a great 50-year run, but it's over now

Frank underwood president house of cardsHouse of Cards/NetflixFrank Underwood, the main character of House of Cards

For the longest time, Netflix has been viewed as a threat to HBO.

After all, the companies are in a similar business: They create original TV programming. They also run syndicated programming.

Netflix executives have played up the comparison. In January of 2013, its chief content officer Ted Sarandos said the company’s “goal is to become HBO faster than HBO can become us.

But Netflix’s real ambition is much grander than becoming HBO. As Peter Kafka at Re/code points out, Netflix CEO Reed Hastings doesn’t want to kill HBO — he wants to kill traditional TV.

Netflix reported strong earnings on Wednesday night. During the earnings call, Hastings underscored his true ambitions.

Reed HastingsGettyNetflix CEO Reed Hastings

Hastings said:

Linear TV has been on an amazing 50-year run. Internet TV is starting to grow. Clearly over the next 20 years Internet TV is going to replace linear TV. And so I think everyone is scrambling to figure out how do they do great apps, how do they things like “Noggin” which are fantastic. That will just keep getting built up and so it’s a transition into figuring out the Internet. And the way people do that is to get involved with us, with our competitors to try to start to learn what are the new patterns and modalities because Internet TV is the way that people will consume video in the future.

Noggin, if you’re unfamiliar, is a video subscription app for pre-schoolers from Viacom. It’s just one of many video apps that are popping up now.

HBO just launched HBO Now, which is much like Netflix. It’s an internet-based, on-demand streaming service that costs $US14.99 per month. Hulu is another internet-based streaming video service. Amazon offers video streaming with Prime Instant Video. CBS is going to launch its own video streaming app. Sports leagues are offering their own video streaming apps as well.

And then there’s Dish, which has Sling TV, a $US20 per month streaming service that offers up a limited, but good, bundle of channels. Apple is also reportedly planning to launch a streaming video service to replace traditional linear TV this fall.

Ted sarandos orange is new black castChristopher Polk/Getty ImagesChief Content Officer Ted Sarandos and the cast of ‘Orange is the New Black’

Netflix is the pioneer in this space. It was the first subscription streaming service that gained widespread adoption. Watching shows through Netflix is vastly superior experience to watching shows through traditional channels. The shows are all available on demand without any advertisements.

In the first quarter of the year, Netflix added 2.3 million new domestic subscribers, and 2.6 million international subscribers, both of which were ahead of analysts’ expectations, according to a Goldman Sachs report. It forecast adding 2.5 million more subscribers in the second quarter of the year. As a result, the stock is up 12%.

Netflix’s growth is being driven by strong original programming — “House of Cards,” “Orange is the New Black,” “Unbreakable Kimmy Schmidt,” “Bloodline,” and many other shows that are drawing in subscribers.

Netflix subscriber chartCredit SuisseNetflix subscribers

While more channels like HBO becoming apps could be a threat to Netflix, Hastings seems confident people will subscribe to multiple channels.

He said this on the earning call:

I think HBO at $US15 is a great value. I mean I have traditionally paid more than $US15 for my cable company for it. So I think they are doing great work with their premium content. It does create an obvious underline of just how great the value is of Netflix with prices ranging from $US7.99 to $US11.99. But we are really comfortable with that strategy. We are continuing to grow with this strategy and it is an incredible value. But I think we you should really think about it is all the Internet services HBO Now, Netflix and Hulu are great values in comparison to the big bundle.

That’s good news for Netflix, good news for HBO, and bad news for traditional TV providers like Comcast.

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