Netflix released their Q2 2012 earnings today and made some interesting comments about HBO. In particular, from the Netflix investor letter:
While we compete for content and viewing time with HBO, it is also possible we will find opportunities to work together – just as we do with other networks. Consumers who are passionate about movies and TV shows are quite willing to subscribe to multiple services.
Quite a contrast to past statements that Reed Hastings, the CEO of Netflix, has made; once citing HBO as the “competitor we fear the most“. Over at Techcrunch, they saw this quote and explored the idea of a Netflix – HBO partnership. However, the post ended HBO stating: “HBO is not in discussions and has no plans to work with Netflix.”
So, why did Netflix put this in investor letter? This other section of the Netflix investor letter provides a clue:
“We have often said that our licensing of complete back seasons of on-air TV series is not only a great experience for Netflix members, but can help build the audience for new seasons of these series. Last quarter, the audience for season five of “Mad Men” swelled subsequent to prior seasons becoming available on Netflix. Last week, the fifth season of “Breaking Bad” debuted to record numbers, up 14% from last year’s premiere, no doubt buttressed by new viewers who were introduced to the series on Netflix. “Sons of Anarchy” on FX and “The Walking Dead” on AMC are additional examples of shows that have seen season over season viewership growth with the availability of the complete series on Netflix. Our unique ability to help members catch up at whatever point in the life of a series that suits them is just one way we add value to our partners when they license their content to Netflix.”
Looking at those two sections from Netflix together, it reads like a love letter or to be more precise, a pitch to HBO to collaborate. If the back seasons of one current hit HBO show were on Netflix (i.e. Game of Thrones), think how many HBO subscriptions that could drive. As an aggregator and given it produces only a very small amount of content itself, Netflix is naturally inclined to work with any and all content creators that its customers are interested in.
Furthermore, HBO is probably trying to decide what and when the tipping point will be for it to go direct to consumers. Currently, a cable or satellite subscription is required to receive HBO. A deal with Netflix could be seen as one way to replace some of those lucrative cable agreements. HBO’s streaming service, HBO GO could be viewed as one of the needed prerequisite to go direct. However, it’s not just about the infrastructure to stream content to consumers, HBO GO also helps HBO own the customer experience. Even Netflix acknowledges that HBO has done a good job with its streaming service. Once again, from the love letter,
“As for HBO, they continue to do great work with HBO GO, which is now available to most US households that subscribe to the premium service.”
Remember, HBO GO’s interactive features for Game of Thrones and True Blood make the service stand out and the feature leads to repeat viewings of episodes. Wouldn’t it be great if Netflix added interactive features as well for shows such as Mad Men and Breaking Bad?