Netflix and HBO, Small Proxy Wars to Avoid MAD

I posted a while ago about Netflix encroaching on HBO (and cable generally) territory by jumping into the licensing of original content. The move raised questions because Netflix’s core competency isn’t making bets on unproven programming, a different skill set than finding creative methods of distribution.  I ran across an interesting interview with Reed Hastings, and excerpt a part below.

My reading of this is that the move to license House of Cards was a message to HBO and the content/distribution companies generally. The content/distribution conglomerates have publicly complained about licensing content to Netflix, seen as enabling households to cut the cable cord.  The message by Netflix is either license us your content and Netflix and MVPD can both cooperatively win by staggering the viewing of content (cable with originals, Netflix streaming after DVD release) or don’t license us your content and force us to have to compete more directly against you by becoming distributors of original content.  The effect in the latter scenario is to bid up the price of original content and to increase churn of both Netflix and the traditional MVPD players.  In other words, mutually assured destruction.

The game theory at play in the new content industry has the feel of Cold War-style proxy fighting — sending early diplomatic messages to avoid all-out war.

Excerpt from Charlie Rose interview as transcribed in BusinessWeek.

Tell me about Netflix’s move into original content.
When HBO (TWX) does original content, they’re real creative. They do scripts, they cast people, they own it on a global basis. What we did is we licensed the premiere from another studio, Media Rights Capital, that’s creating a show called House of Cards. David Fincher is directing it, Kevin Spacey’s starring in it, and like The Office, it’s a remake of a British success. And that’s what is characterized as original content, because it’s going to be exclusive on Netflix. It’s coming out next fall.

Should HBO be worried?
In some ways. We’re like baseball, and they’re like football. We have no overlap in content, but we sell to the same person, the same aficionados are passionate about our products. But I don’t think the NFL worries about baseball encroaching on their territory.

With this platform, aren’t you going to be inclined to want to create content, not just license it?
Well, we’re inclined to do things that are profitable for us. [HBO has] an incredible competence that we don’t have in creative, and in figuring out what’s going to be popular. We can be a licensor of prior seasons from Showtime, HBO, and others and be very successful, so that’s our current ambition.