In the month of September, Neflix experienced all the highs and lows a single company can manage. First, it stunned users when it went ahead with its price hike, which saw the streaming component and the DVD component split into two separate entities with two separate prices. Even with strong user protest and an estimated 1 million subscribers jumping ship, Netflix announced another change: the re-branding of their DVD rental service as Qwikster. Finally, to round out the month, Netflix signed a deal with Dreamworks for streaming its movie content.
Netflix has experienced ups and downs even with its content providers. Its addition of Dreamworks comes only after it lost a major contract with Starz. Meanwhile, competitors like Amazon continue to play catch-up, increasing their streaming catalogs every day. But for Netflix, the Dreamworks deal was not a reaction to other streaming providers. It was a firm challenge, laughing in the face of Cable companies. The battle lines have been drawn.
Netflix as a Cable Competitor
When Netflix first started streaming video content, some content providers were reluctant and refused to ever add their movies or TV shows. Others welcomed the deal and happily added more revenue to their giant piles of cash. At the time, cable companies paid little attention. Nothing could slow down their empires and more of them sought to expand their imperial reach from TV, telephone, and Internet service to owning some of the content themselves. The NBC-Comcast deal is a prime example of this.
Over time, Netflix’s popularity increased, and users who were once loyal mail-in DVD renters became the early adopters for a streaming media craze, one that expanded from the computer to the living room and mobile devices. Still, cable companies mocked Netflix and remained convinced that no one would cut the cable cord in favor of it.
By 2010, Netflix had become so popular that it accounted for 30 percent of all Internet traffic during peak hours. Competitors to Netflix served as supplements for the content that users did not already have, and many of them were happy to cut the cable cord in favor of some type of combination of Netflix, Hulu, Amazon, and iTunes. Cable companies responded with rage, introducing bandwidth caps designed to discourage heavy Internet use.
Those that could influence content providers encouraged them to pull their content, causing premium channels like Showtime to stop Netflix streaming. Starz was soon to follow. Time Warner also decided to start competing in the streaming market, offering HBO Go, a streaming service that still requires a cable subscription.
The Line in the Sand
Netflix answered cable company criticism and apparent punitive actions by signing its own original content in the form of its first original series: House of Cards, set to air in 2012 and star Kevin Spacey. The failed attempt at spinning off of its DVD division was also designed to give it more flexibility in pursuing streaming contracts and firmly establishing itself as a real alternative to cable TV.
With the Dreamworks deal, Netflix has drawn a firm line in the sand, daring cable providers to step over it. Netflix will now be able to offer first-run feature films and television specials, much to the chagrin of premium cable channels that thought they had a monopoly on the concept. It also shows that Netflix is willing to bypass TV networks completely and go directly to studios for content at any cost.
The battle is far from over, and Netflix will have to do much more to appease angry subscribers who feel like it is headed down the same cold and heartless road that the large cable companies once traveled. Moreover, if it is to truly compete, it may have to deal with attempts at sabotage, since the very companies it hopes to circumvent, the cable providers, also provide the Internet access Netflix subscribers need to keep watching. With no end in sight, this could be a long, drawn-out war, and like most wars, there will be plenty of innocent casualties and no clear winner in the end.