Netflix: The Next Premium Cable Channel?

Regardless of your position on Netflix, one thing is for sure: Reed Hastings loves to keep consumers guessing. Speaking at the Morgan Stanley Technology, Media and Telecom Conference in San Francisco on Tuesday, the Netflix CEO challenged the popular portrayal of Netflix as a competitor with cable providers.

While it’s not something he plans to do right away, Hastings made it clear to his audience that Netflix’s current trajectory will actually ultimately land them in the cable TV line-up—pitting the company against premium channels like HBO and Showtime.

“It’s not in the short-term, but it’s in the natural direction for us in the long term,” explained Hastings. “Many [cable networks] would like to have a competitor to HBO, and they would bid us off of HBO.”

The Netflix CEO went on to belittle “copycat competition” from services like Hulu Plus and Amazon Prime. “Amazon’s strength is that they’re super long-term and keep everyone guessing,” he reasoned, “especially me.” However, although he sees Amazon gaining “some share of the market,” Hastings feels that “being broad” is Amazon’s “game,” not theirs.

Instead, he feels that HBO Go—which is actually set to be available on Xbox Live this April—and cable’s TV Everywhere model are far more deserving of the company’s attention.

“It’s very easy for companies to overestimate copycat competition and not see the real threat,” Hastings argued. “You go back to 1995, and you talk to the Netscape sales force and ask them what their No. 1 competition is, and they’d say Spy Glass, which was taking a little market share from them at the same time. But the real competition was Microsoft and bundling.”

So what’s his strategy? Two words: original content.

Given the reluctance of TV channels and cable networks—which thrive on buying syndicated shows—to “share” with Netflix, Hastings sees exclusive content as the only viable avenue to compete the way he thinks Netflix should.

“So we have to buy more exclusives,” he urged.

And it’s true. If Hastings sees Netflix not as an alternative to cable but as an eventual addition to cable—premium cable, in particular—he’s going to have to set Netflix apart by providing not only a preferable user experience but also content that can’t be found anywhere else. As HBO and other premium channels broaden their reach into what used to be Netflix-only territory, the pressure is on Hastings to prove the company’s continued significance—which means that he can’t be distracted by Amazon, Hulu or other so-called “copycat[s]”.

As Netflix continues to develop its long-term strategy, it must focus on the more multidimensional threats to its relevance. HBO, for example, invests 60 percent of its programming funds in movie licenses while the other 40 percent is spent producing exclusive content—making HBO Go a very real hazard to continued market dominance by Netflix.

“That’s part of the reason why do original content,” he concluded. “That hedges us against that long-term TV Everywhere threat.”