Netflix: from Blockbuster to HBO

Fascinating move.  HBO has shown how incredibly profitable that the model of producing high quality proprietary programming can be in being able to charge a premium and generating stickiness. So there is nothing wrong with the model; it’s been proven. And it’s the progression that HBO itself followed from just showing movies (now a channel like Encore) to its own original contact.  But the risk seems to be in betting too much on one show (when its hard to predict taste) to the extent that Netflix is betting too much. Also, there is another risk: negotiating agreements to distribute DVDs or stream content is a different skill set than taking and evaluating content production risk.  But perhaps it was more risky to wait around for the integrated content providers/cable networks/cable distributors to continue to freeze them out of DVDs and content on a timely basis, as they have openly talked about.

One of the most fascinating things that will come out of this perhaps sooner rather than later is an antitrust suit. The more that Netflix establishes it directly competes with the cable networks, the easier it will be for them to establish (and it will still be arguably hard) an antitrust claim against the cable networks (premium and regular cable channels) and cable providers (the Comcasts) for protecting their monopolies or market positions against Netflix by starving Netflix of content. Even with whatever theoretical problems may exist with sustaining the claim, getting discovery if it does will surely yield emails about crushing Netflix that will look horrible in court and in public opinion. Not sure if this is on Netflix’s mind or not, but a lawsuit is a partial hedge to this “original content” strategy, and potentially will give them leverage on getting the other content on an equal basis.

Plenty more on this deal later. Netflix gets to the essence of using the Internet to disrupt a number of entrenched media-related business models and it’s doing it again and again.