HBO vs Netflix

Business model matters.

The quote of the week for me was this one from Ted Sarandos, Netflix’s chief content officer:

The goal is to become HBO faster than HBO can become us.

Netflix will have to produce shows that are worth watching. HBO has proven it can do that over and over again for years. Netflix has not.

But Netflix allows you to have a direct relationship with them and use your account on almost every connected device I can think of. HBO requires you to have an account with a cable company and then even if you do, it is hit or miss whether you can use their service on the device you want to.

That's what I mean by business model matters.

HBO is experimenting with the Netflix business model outside of the US. They have a streaming service in four markets in Scandinavia that looks a lot like Netfix. But they don't seem eager to bring that to the US.

HBO isn't going to adopt the Netfix business model in the US without a strong reason to do so. If Netflix is successful with their model and proves that it works, maybe that will be the strong reason to do so.

So, if you want an HBO that looks like Netflix, support Netflix' efforts to look like HBO.


Comments (Archived):

  1. kidmercury

    amazon will crush and embarrass both, but no doubt netflix will be 2nd place (aka first loser).

    1. Chris Phenner

      Where is Amazon in original content? I’d hold the ‘crush’ and ’embarrass’ verbs until AMZN has the ‘at least one decent show’ feature.

      1. kidmercury

        amazon is producing original content, it is already available to prime subscribers. netflix runs on AWS, amazon has tablets…..amzn can leverage its larger network effects here, while netflix doesn’t really have anything too defensible here in my opinion. there’s probably room for a few players here, though i’m confident amzn will capture the top spot by a sizable margin.

    2. awaldstein

      Different model unless you see the content creation ecosystem disrupting anytime soon.

      1. kidmercury

        amzn is investing in original content, already has original stuff on prime. they are taking it slowly and in time i think their approach will prove to be more disruptive because it will be less dependent upon the hollywood union system.

        1. awaldstein

          I’ll keep a watch on them.Issue with Amazon is that they are the uber catalog. We buy from them. They don’t sell me anything.Creative needs to be sold. To date, not their center of gravity.

        2. takingpitches

          yep, amazon is backing some big pilots including something by Garry Trudeau and something else by the Onion folks.

    3. William Mougayar

      Amazon is an amazing distributor of content. They will have to aggregate, right? Or do you see them as a creator?

      1. kidmercury

        they are already creating original content that is already available to prime subscribers. i don’t think anyone is going to compete with them on digital media storefront unless they take a niche approach, i.e. netflix for horror fans. without a niche approach it is just a big data war which gives amazon a big advantage. i don’t think google can do especially well with retail customers (since business customers are their bread and butter) and apple is a hardware company not a data company; in sum, i don’t see any formidable threat to amazon becoming top dog of the one stop digital media store. bezos wins again……

    4. kidmercury

      judging by the comments it seems amazon’s efforts at original content are not widely known. here is an article that elaborates:…amzn is hiring seasoned writers from popular tv shows to create its original content. granted, amzn is not a true (native) media creator — but neither is netflix.

      1. JLM

        .There really is a formula for excellence that can be discovered and copied as long as you keep slapping everyone with a checkbook.I would shudder to find out that Amazon was even “interested” in something I was involved with. Not bloody likely but scary all the same.JLM.

    5. fredwilson

      is amazon greenlighting shows?

  2. William Mougayar

    HBO is in a classical innovator dilemma’s case where they can’t advance until they hurt and cannibalize their existing model.It’s better to shoot yourself in the foot, rather than have someone else shoot you in the head.

    1. jonathan hegranes

      was thinking the exact same thing… right now the best channels (HBO, ESPN, etc) get ridiculous money from cable agreements that it’s tough to give up.without knowing the specifics of their agreements, it’s tough to speculate, but agree that they need to disrupt themselves. cable networks are no longer a necessity to reach their audience.

      1. JLM

        .They get the money up front and can count on it.The disruptive factor is — can anyone cut out the middleman?JLM.

        1. LE

          “can anyone cut out the middleman?”What’s with the constant (not from you but from people in general it seems on the net) hate of the middleman and their “evils”?It may surprise some people out there but there are many people who don’t have the time to DIY everything and just want to be pointed in the right direction and are willing to pay something for that.This entire movement toward low price and unlimited time that everyone appears to have (must be unemployed people?) is simply not true. HBO is a middleman for great content and they deserve to make money. And it’s not up to the peanut gallery to determine the economics of what is appropriate money for what they do or to whine “it’s not fair”.I needed to buy a firewall recently and I would have loved to have a middlemen that would save me the time to figure out the best one to buy for the particular application.My father was a wholesaler/importer (a middleman) and at the gift shows the big buyers, the successful ones, would walk into the booth and say “give me your best selling items” and would place a big order and then move on to the next booth. The pikers would “drey” over every last detail and drill down for the lowest price possible and waste an incredible amount of time and never come close to seeing everything there was out there (I got to deal with those people the guy with the knowledge would blow them off to me in many cases). The big buyers probably could have cut out my father if they wanted in some (but not all cases) but didn’t. Because he and other “middlemen” provided a service – knowledge of the market for those that didn’t.(I understand we are talking about a different situation here but the dislike of middlemen as a tax and leech is simply not the case many times.)

          1. FAKE GRIMLOCK


          2. LE

            First, I Agree with your point #2But this:”MIDDLEMAN = SIGN OF INEFFICIENCY.”Sounds like a digital argument as if machines or algorithms can replace human judgement in almost all cases.In other words if the wholesaler at the show is needed by the big buyer the only reason that’s the case is that there is an inefficiency that causes complete market information to not be available. And if we can fix that, we can get rid of the middleman.I don’t see it that way. The answer to a question with me is always “it depends”. And to find that out I have to ask questions and those questions take me down a particular road to an answer that is bespoke if you want to call it that. There are to many forks to consider and put all the possibilities down when coming up with an answer in a situation. Some of it is gut and the gut is based on the feel of the particulars. Judgement. Computers don’t have judgement.

          3. Richard

            But they do, see optimization algorithms.

          4. FAKE GRIMLOCK


          5. LE


          6. Drew Meyers

            Middleman save people time by cutting through the crap. To be honest, with the growing information overload problem the entire web suffers from (its get worse every single day), I only see the role of middlemen increasing.

          7. ShanaC

            1) might not be true. It might b a sign of specialization.

          8. bsoist

            I assumed middleman in this context was the cable provider, not HBO. If so, it’s a classic case of tax and leech, if you ask me.

          9. JLM

            .I think you may be internalizing the “middleman” meme just a bit. It is a distribution channel issue not real a “man” issue.If one is of a certain age, cable was a huge leap forward. Believe me if I can see every Longhorns game, every Tarheels game, the Final 4 and Downton Abbey — I don’t care how it comes to me.You are absolutely right, the current mad dash around the cable company requires one to be able to find the path. The path is coming from the Internet and the computer.If you can get the signal to your computer or home network then the only issue is how to get it to the big flat panel in the gameroom.HDMI cable is the path of least resistance.At the end of the day, it still is the Horns, the Heels, the Final 4 and Lord Grantham.And, yeah, I hate those complicated cable bills.JLM.

          10. LE

            I interviewed Milton Shapp in college a year or two after he left the governorship of PA. He told me the story (which I actually might have on audio tape somewhere I think) of how he got into the cable business way back – it’s how he made his fortune. People forget that Ralph Roberts (Brian’s father – Brian was in my college class) started with a small system in Mississippi.Cable was no sure bet at the time. And plenty of work had to go into assembling that monopoly Comcast now has. And Roberts (from what I read just now) was turned onto the idea by Pete Musser of Safeguard who later went bust in the dotcom era.Milton Shapp:

          11. JLM

            .Cable is a very funny business and has made a lot of entrepreneurs a lot of money but it is not clear that it ever was a cash flowing business.It has many alleged originators. I worked for a cable entrepreneur who arguably invented it and made a lot of money.The business in its infancy which was all about “passing homes” and making “hook ups” and then selling to someone who valued those numbers.It was the first telecom bubble.JLM.

          12. Richard

            This is a great point, time is value! satisfaction is value!

        2. fredwilson

          that’s what i am hoping Netflix is doing. if they are successful, then we have a new ballgame

          1. Austin Clements

            YouTube is now funding premium (subscription) channels. Nothing cuts the middleman quite like this one. Netflix paid $100mm for House of Cards. YouTube can fund 100 channels of serialized content for that cost.Watch for YouTube unexpectedly blowing past many others in this space over the next 2 years.

        3. FAKE GRIMLOCK


          1. ShanaC

            well, upper middle class kids today have cable because their parents are stuck in the innovator’s dilemma. So you are thinking 20 years out?

          2. FAKE GRIMLOCK


        4. bsoist

          When my son and I realized how much great programming we could watch on HBOGo, I decided to keep paying $17 a month to the cable company so I could keep using it. But I very rarely watch HBO. I use Go on the Xbox, Mac, tablet, appletv, etc. Aside from live sports, it’s the only reason I really need to keep tv service at all. I’d gladly pay HBO and ESPN directly – or some kind of a la carte subscription system so I can pay one bill but only have steams I want. The ability to switch those streams when I want without needing a degree in mathematics to understand the impact on my bill would be nice too.

      2. Matt A. Myers

        It’ll be interesting to see what happens once those deeper pockets due to large recurring revenue basis no longer exist, and content will be paid for at what people actually value it at.

    2. jason wright

      i remember Fred’s ‘sustainability’ post of last year about this very dilemma. i would say dump the existing management (too wedded to the status quo and the personal commitment they made in achieving it) and find fresh blood to rip up the existing mantra.

      1. William Mougayar

        Harder said than done. It’s like driving 2 different cars. One pilot cannot drive 2 different cars at the same time.They would need to launch a totally separate business that looks like Netflix and without any regard for cannibalization. Cannibalization will be their road to survival (if they do it).

        1. jason wright

          i would say that it’s easier said than done, but done it has to be. it’s done by culling resistance to change. we all do it, resist, and we all know that we do it. we run away from change. we need to be given no other choices. it’s empowering, it’s liberating, and at the end of it we realize there was nothing to fear. fear is fear itself.burning bridges behind you can sometimes be the smartest thing to do. when there’s no going back you only have one choice, to go forward.

        2. Aaron Klein

          My guess is Netflix will be very reluctant to try a business model spinoff again ala Quickster or whatever it was.

          1. anne weiler

            The problem with Quickster wasn’t the business model per se, but that Netflix lost sight of how their customers were using them. A signficant number were using the DVD service as a gap filler until everything was streaming. They also used it to keep track of their preferences. Perhaps it was just too soon—the streaming service didn’t have all the data about what content people liked and didn’t have all the content when they tried to make the split.

          2. ShanaC

            this ends up being a problem of how to do licencing and how backcatalogs work. Media companies don’t invest enough in data for marketing, for if they did, this would be a nonissue about how to understand backcatalogs

          3. anne weiler

            It’s also a problem of streaming on demand vs other forms of distribution.

    3. LE

      I think from what I can tell for now HBO is doing the right strategy even though it pisses off a certain small group of people. If you went out and asked random normals “do you get HBO at home and would you like to be able to get HBO ala carte on your computer and ditch the monthly” of course many would say “yes”. And many are just fine with the way it is now as long as nobody uses HBO to kill a bunch of school kids.But so what? Right now at least HBO and the cable companies have a good situation and most importantly the cable companies control the last mile to the house. And there isn’t going to be an act of congress that happens to make that change because some people want to have it “their way”. (Go to Burger King if you want that).I would venture to say that the majority of the market, the market of today doesn’t really care about the issues being discussed on this blog with regards to content being accessible everywhere. And even if they did they wouldn’t be able to do anything about it.Lastly, it’s not a sin for a business to make money, have a lock on the market, and be successful despite the crybabies out there that haven’t figured out life just isn’t fair most of the time.HBO will change when they have to. That time has not come yet.

      1. fredwilson

        speaking of the strategy folks inside of HBO and Time Warner, this is an interesting post…

        1. LE

          Would mention that I own “” and HBO had approached me many years ago about buying that.That said the post is interesting.2. Each year, the MSOs, as HBO’s reseller, continue to take a large share of the $15 monthly subscription fee that HBO charges for its service. (Let’s assume 1/3 to 1/2.)To me first the numbers here can’t even be pinned down by the writer. “large” share and then “let’s assume” displays a tremendous variance. MSOs control the final mile and the bargaining power comes with that. That said the MSO’s have to answer to subscribers. I paid $19/m to Fios so I could watch Dexter. So they better offer Sho or I’ll switch to Comcast.3. Each year, it becomes clearer to the corporate strategy folks who run the numbers that HBO is leaving ever larger sums of money on the table because it is unable to sell HBO Go directly to consumers online.Consumers are fickle. By having to satisfy so many masters they are not as easily insulated from that fickleness I would argue. By having to only cut deals with the MSO’s they allow themselves some lock and a continuing stream of revenue. And the MSO’s take care of marketing somewhat to their end users as anyone who has a cable subscription can confirm.As this shift to the Internet occurs, mass media companies have the opportunity to deal directly with their customers as they never have. Large creators and publishers of content, like HBO, can now interact with their customers and understand their wants and desires in a completely new manner.I totally don’t get that at all. They can and do understand what their customers want now and have for years. If they didn’t they wouldn’t be HBO.Ironically, HBO has to ask the very same question that is asked by many of us who subscribe to cable. When do I cut the cord?I wonder if Dorr has done any research on this? As Dirty Harry’s perp would say (in the coffee shop scene) “who’s “we” sucker”?I don’t think there are “many” people at all that are asking this although there could very well be many depending on where that question was asked.Here’s an example of a question that “many” people are asking “how can I loose weight” or “how can I make money”. But even “how can I find a job” is perhaps asked by only 10% of people out there if you believe the unemployment numbers.

          1. pointsnfigures

            I ditched my landline finally. I’d love to ditch cable. I have to pay to rent a box. As others have aptly pointed out, there are very few things I like to watch in real time except sports (Chicago teams here-so I am more frustrated than most) I’d pay to stream a program-for example: I’d pay for some HBO programs-but don’t want all their crap. I’d do that station after station-and I’d pay to stream them through a service via wireless hook up on my TV.The business model for television and bandwidth is heavily regulated by the suits in Washington DC. Get rid of all that regulation, have the wild west for awhile and lets see how it all shakes out. That’d be my solution.

        2. takingpitches

          In my opinion, Time Warner has too much riding on the current system to ever allow HBO to be unleashed domestically.Particularly, it has too much riding on the annual increases in sports networks including ESPN and various regional sports networks, the latter of which Time Warner owns many. Many of the sports networks are bundled into lower tier packages by contract.To the extent that you are not interested in live sports and are willing to endure a certain delay in watching other programs (for example, when a series is available on DVD). HBO Go or Netflix gives you the option to cut the cord. You can fill in news online.If non-sports watchers stop handing money over to the cable systems and subsequently over to the sports networks to help pay for the inflated sports rights, one of the stool legs making those ever-increasing prices possible — namely the willingness of cable and satellite subscribers to also pay higher rates for their television subscription packages– will be weakened, threatening the system.

          1. ShanaC

            That’s going to be over soon. Cable is a lot less fun if you don’t watch sports

          2. bsoist

            Exactly. I’m a big fan of my Mets, Nets, Jets, and Devils, but I’m not really a sports fanatic. BUT I keep tv service so I can watch it when I want to. Otherwise, it’s a waste of time. I’m not a big “sit down and find out what’s on tv” guy anyway, but once in a while I want to kick back and watch something – and I end up watching Netflix, Amazon Prime, iTunes.

          3. JLM

            “I’m a big fan of my Mets, Nets, Jets, and Devils, but I’m not really a sports fanatic.”I think the intervention is schedule for Tuesday night. You available?Now, just kidding you, old boy.JLM.

          4. bsoist

            If you’re implying I really am a fanatic, I disagree. I follow those teams, but I don’t take it too seriously.If you’re making a remark about my choice of teams, all I can say is – it’s a good thing I don’t take it too seriously, huh? I had to laugh when I saw this map. You have to zoom in to see the Jets color at all. :)

          5. bsoist

            same holds true if you wan’t watch “reality” shows

    4. Nate Jones

      Netflix was brave enough to do that when they started stepping away from the DVD delivery model in favor of the streaming model.

      1. William Mougayar

        Exactly. They had no choice.

  3. awaldstein

    House of Cards is a big bold move on their part.Quality is there for my part as I gobbled up have of the ‘chapters’ this weekend. Model wise don’t know for them.

  4. chrisdorr

    Great points. And with that direct relationship with their customer, Netflix keeps a larger percentage of the dollars that subscribers pay. HBO gives up half of their monthly fee to the MSOs. As Netflix grows, pressure on HBO will increase to create a direct to consumer model. I have watched the first three episodes of House of Cards and quality easily matches HBO. Netflix now needs to do more original programming and the race will really be on.

    1. ShanaC

      why did you like house of cards?

  5. takingpitches

    This is from a post I wrote in september 2011. The problem for them now is Amazon prime, see Downton Abbey yesterday:”HBO is an appropriate role model for Netflix, and it appears that Netflix has molded itself in that way. Selling a service for $10-20/monthly both distributing non-original content and producing groundbreaking original content has proven to be incredibly profitable. HBO is sui generis, but the advantage that Netflix potentially has is that HBO is “tied to the cord” and is hurt by the constantly escalating prices of basic packages which consumers are increasingly unable to pay, since consumers cannot access HBO without buying the bloated basic package. As the Economist put it, “imagine a supermarket where, in order to buy the item you really want, you first have to buy almost everything else in the shop. Now imagine the price of all those other items is constantly rising.” In contrast, Netflix can position itself as a cable alternative. There is tremendous opportunity in this model and positioning.”

    1. kidmercury

      amzn has the complete end to end solution here. original content, AWS, kindle tablets. sorry nflx, you had a nice run, but once you made the market large enough for amzn to be interested, your fate was sealed.

      1. takingpitches

        Agree, I also wr0te this:”Perhaps most importantly, on the streaming side, Google, Amazon, Apple, Dish/Blockbuster among others, are in the market. They have other ways to make market from streaming. For example, Amazon can bundle the price into its Amazon prime delivery fee. Google will find a way to monetize its content through its core business of ads. Apple obviously makes huge profits by selling high-margin hardware like iPads. These other companies also have more carrots and sticks to play with the studios because of their other businesses than Netflix has.”

        1. Matt A. Myers

          I really hope these other big companies leverage their resources in clever ways – it’ll make this much more exciting..

      2. Matt A. Myers

        It’s true it’s the ecosystem that’s important – though Netflix could position themselves to be bought by another large ecosystem looking to compete with Amazon. Mind you, those other larger ecosystems will also be competing, perhaps with slight differentiations to fill different market gaps.

      3. LE

        amzn has the complete end to end solution here. original content, AWS, kindle tablets. sorry nflx, you had a nice run, but once you made the market large enough for amzn to be interested, your fate was sealed.If that was the case the big guy would always trounce the little guy and that is hardly the case. The business world is littered with large organizations that have everything it takes to succeed in a new market but yet they don’t. IBM, Microsoft, GE, Kodak, Yahoo, Xerox the list is endless. Oh yeah and there is USPS but that’s a special situation.It’s not for lack of money certainly, or lack of any resources. Or ability to hire the best consultants or the best people in the world.Amazon while very successful in what they do (I’m now a prime member and order as many things I can from them) has many rough edges and they don’t have that experience thing licked yet. They are no Walmart. It all stems from the top from Bezos and they way he thinks like a clinician and not a creative. It’s actually amazing how well amazon does given how hard they make it to actually find what you need on their site it’s like walking into a disorganized bazaar of years past.

        1. kidmercury

          the startup wins when they have an enabling technology (technology = way of doing things) they are leveraging that renders the incumbent’s advantage obsolete. netflix possesses no such technology against amazon (but does against hbo) and thus the odds are stacked against netflix here.

          1. LE

            “netflix possesses no such technology against amazon”Ok so what was Zappos “technology” exactly?Netflix technology is “a service that I like to use and I’m comfortable with it and it seems to be improving over time”.Currently what Netflix does is execute well. McDonalds makes hamburgers but it also is able to lock up better real estate locations than the other franchises. They are a well oiled machine. People run that machine and they do something that anyone can do but much better (I’m talking about comparing them to equals obviously people who have the same resources and money to spend.)Let me make a very important point here that may not be obvious to people who invest in businesses rather than operate them. Details matter. Generally people who invest in businesses don’t work at that level they work at a higher level (which can result in more money in the end I will agree to that and I’ve seen it happen many many times). As a result they simply don’t understand the nuance of what actually makes something work or not. They just don’t have the seat of the pants feel for what happens behind the scene.You see this as a technology issue and I don’t.

          2. kidmercury

            i don’t understand your point as zappos was acquired by amazon. however if companies focus on a small enough niche i believe they can leverage qualitative processes that are sufficiently defensible and not easily replicated by incumbents focused on larger markets.i defined technology as way of doing things — not about something science-y (though quite often a new scientific innovation requires entirely new processes). from this perspective execution is about a way of doing things. amazon can outexecute netflix because they rely on basically the same process. netflix is even dependent upon amazon to stream its movies.

          3. FAKE GRIMLOCK


          4. ShanaC

            no. It is the ones that don’t kill you. There are places for outsourcing (and indeed, Netflix outsources database work to…amazon)

      4. andyidsinga

        I didn’t realize amazon original content. hulu and amazon are certainly catching up to netflix in many ways.They don’t have the complete solution though – their video site usability is still, a little cruddy.Wife and I are watching downton abbey ..and went over to amazon to get the latest episodes – but the site doesn’t remember for us what the last video we watched was – which destroys the notion that the “cloud” has infinite memory/storage resources 😉

        1. kidmercury

          yeah they def need to fix their usability, but i think they will in due time. i watch amazon videos all the time on my roku but i typically have to surf and organize via my laptop because usability via TV is sorely lacking. netflix does a much better job here, amzn just needs to rip them off on this front.

      5. Aaron Klein

        I’ve never seen amazon original content and I’m a prime customer. Do they have any decent stuff?

        1. andyidsinga

          me either .. ok @kidmercury:disqus thats two of us… cough up the dets 🙂

        2. kidmercury

          haven’t watched any of it, not expecting it to be good at this time. but i think they will get it right in due time and it will be more powerful because it will be less subject to hollywood union rules and thus giving them the rights flexibilities they truly need.

          1. takingpitches

            I haven’t seen either, but here are some details about things in the works:http://www.ecommercetimes.c

          2. takingpitches

            I will just paste it in:The six comedies include two animated series and one musical. The studio is working with new talent as well as Hollywood names.Academy Award nominee and Pulitzer Prize winner Garry Trudeau (“Doonsbury,” “Tanner ’88”) is working on the pilot for “Alpha House,” a series about four senators in Washington, D.C. who live together in a rented house. “Browsers” is a musical from Emmy-winning comedy writer David Javerbaum (“The Daily Show”) and director Don Scardino (“30 Rock”) about four young people working their first jobs at a news website in Manhattan. Two “Big Bang Theory” regulars, Kevin Sussman (Stuart) and John Ross Bowie (Barry Kripke), created the animated series “Dark Minions.” The animated workplace series is about two slackers working for their wages on an intergalactic warship. The pilot will be produced by Principato-Young (“Reno 911″).”The Onion Presents: The News” is a behind-the-scenes scripted comedy that takes place at the offices of the satirical paper. It’s developed by The Onion’s Will Graham and Dan Mirk (“The Onion News Network,” “The Onion Sportsdome”).Amazon Studios is also expecting two more pilots. The animated “Supanatural” is a “Buffy”-style comedy about two divas who are humanity’s last defense. The show is written by Lily Sparks, Price Peterson and Ryan Sandoval, and produced by Jason Micallef (“Butter”) and Kristen Schaal (“The Daily Show”).The title of the show “Those Who Can’t” is a play on the saying “Those who can, do; Those who can’t, teach.” The show is a comedy about three juvenile, misfit teachers who are as immature as the students they teach. It came to Amazon studios through the Amazon Studios online open door process, and is written by Andrew Overdahl, Adam Cayton-Holland and Benjamin Roy (“Grawlix”).”

          3. kidmercury

            i think it is smart for them to go after some seasoned media pros with success in tv world, but the real winning ticket is going to be the crowdsourcing stuff via amazon studios. i think they may end up acquiring some digital content firms like maker studios.

          4. takingpitches

            Yep – it looks like that is what Grawlix is…parallels the KIndle platform in ebooks I think.

          5. ShanaC

            to some degree crowdsourcing works. Outside of 50 shades, I’m not hearing of Amazon taking their self-publishing platform and marketing the hell out of it

          6. ShanaC

            these all still feel more than a bit risky. While there are some names, they aren’t groups that have developed series of shows before. Also, is a series what we want on the web – I mean does time matter?

      6. ShanaC

        I don’t see that. Amazon isn’t all in one, even for streaming. In fact most of their streaming offerings even if you are a prime member is pay for.Which defeats the purpose of what they are trying to do

        1. Drew Meyers

          I’ve streamed 3 movies over the past 3 days. Bought two, and rented one – from Amazon.

      7. Mark Essel

        I bet on the pure service over the conglomerate every time. Amazon playback is a subpar experience, it pauses often on my 75mbps downlink. It doesn’t play on all set top boxes (apple tv).Dig the competition though, Netflix is still the king in our house.

    2. sujal

      Quibble, but there’s a lot of speculation that HBO only takes in $7-8 per subscriber since they split with the cable companies. So, it doesn’t need to be a $10-20 subscription. Netflix is already at parity on revenue per subscriber, and looks cheaper from the consumers standpoint. It’s really a question of growing their subscriber base and having content people will subscribe for.The Atlantic Wire just had a post/article estimating what it would take Netflix to just break even on their investment in House of Cards. (http://www.theatlanticwire…. It goes into some of the economics at play.

      1. takingpitches

        Thanks. Do you mind resending the link?For much of HBO’s life, the content and distribution sides were integrated so they were the cable company for a portion of the US. Even now that TW spun off the distribution, it has too much invested in its regional sports networks being distributed on as wide a tier as possible to undercut the system.

    3. Robert Holtz

      You are precisely right about the lunacy of tiered cable services. The cable providers are exploiting the market the same way the phone company used to when there were no alternative models. This has been to Netflix’s benefit as it has wisely evolved through platform alliances (Apple TV, Roku, Boxee, iOS, Android, desktop) spanning just about every form factor under the sun.When “HBO GO” was first announced, I was so excited because I THOUGHT it was HBO’s first effort to untether itself from the cable tiered must-carry madness. Turns out, viewing HBO GO content anywhere requires that you are first a traditional cable-based subscriber to the service. What a disappointment!When Walter Isaacson’s biography of Steve Jobs first came out and word of Apple’s iTV project came to light, I had hoped that Apple was going create a platform that treated channels more like apps. I LOVE the idea of ordering my TV channels on an à la carte basis. I resent the idea that I am paying for channels I literally never watch and don’t care to watch.Before iTunes and digital downloads, I used to buy entire albums just to get the one or two tracks off of that album I actually wanted to own. I can’t imagine ever going back to that model again. Similarly, I think once consumers have a way to pick and choose their channels on an individual basis, they will never go back to the old model. I’d even pay more per channel for the channels I actually watch than my cable provider allocates for them after it charges me for all those other channels and services I don’t use and don’t intend to use.I’m still not sure if Netflix is making the right move by going into original programming. I understand the rationale and i see the parallels in why HBO did it and how it worked for them. But to HBO’s credit, it isn’t as easy as it looks. For HBO, the experiment was a resounding success. But it is important to point out that the key wasn’t that it produced its own content that you could only get on HBO. It is that they made exceptional content — great content — and there will always be people who will pay for that. If the content isn’t exceptional, then the model fails.In the long term, I like HBO’s prospects better. Despite short term constraints, I think HBO GO can evolve into a direct subscriber service (no cable provider required) and get to all the form factors Netflix supports. Whereby Netflix, at least in the short term, will have to push through like HBO did, in effect competing with its own vendors (movie studios), in some cases bidding directly against other producers and studios… and if they don’t have a few major blockbuster hits, it is going to ultimately really hurt them.

      1. takingpitches

        Nice comment. Thanks.

  6. David Semeria

    In theory it’s easier for HBO to become Netflix than the other way round. Making top quality content is hard and expensive — and HBO have years of experience in this field.But HBO don’t want to kill their cash cow, hence the opportunity for Netflix.The Innovator’s Dilemma playing out right before our eyes… Fascinating.

    1. JLM

      .I agree with you but in a timid way.One of the things that Netflix capitalizes upon is the cult following that can come from an extraordinarily resonant show whose resonance is established before Netflix picks it up.Two very different shows which come to mind are Friday Night Lights (the cult of Texas Friday night football) and Downton Abbey.One is from NBC — garden variety old school television production.The other is from Masterpiece.Two very different shows but two real cult followings.The ability to watch an episode at your own leisure is huge.There is an almost riot that season #2 of Downton Abbey has not yet been released for viewing.I am not so sure it is just “making” the content, it may also be “sourcing” the content.Speaking of which — don’t be a stranger. Everyone misses your commentage.JLM.

      1. William Mougayar

        Commentage,- is that a new word 🙂

      2. David Semeria

        Thanks JLM. Been up to my neck (still am).I come here every day but am generally too wrapped up in my own little world to have up-to-date opinions on things. As the saying goes, “be careful what you wish for..”I wished for it and got it. My lack of commentage is the side effect.

    2. Matt A. Myers

      Best bet for HBO is use the profits from this cash cow to offer as closely as possible to what Netflix does – just like Blockbuster should have done to compete with Netflix before they went under.

    3. ErikSchwartz

      HBO is one of the best at it and they are still batting well below .500. It’s a hit or miss business. HBO has lots of short lived original series.

      1. ShanaC

        so are the big networks. It isn’t an either or, it is a “no one knows why content works” problem

        1. ErikSchwartz

          The major networks business model is much less hit driven.



      1. ShanaC

        studios work like the venture business. Hits support everything else because who knows why certain things become popular,.I’m still waiting for psychohistory to meet probability to get a better handle on the content problem

  7. Guesty McGuesterson

    “Netflix allows you to have a direct relationship with them and use your account on almost every connected device I can think of. HBO requires you to have an account with a cable company and then even if you do, it is hit or miss whether you can use their service on the device you want to.”I consider the “every connected device I can think of” a prerequisite to giving this type of service a dime. I am frustrated and floored by the fact that this view doesn’t seem to be widely shared.

    1. fredwilson

      me too

  8. William Mougayar

    “The goal is to become X faster than Y can become us.”Isn’t that every startup mantra? I think it is. Brilliant.

    1. Rich Ullman

      Yes. Sort of. I think. Let’s not worry about and parse the details. That’s messy and futile. I agree. 🙂

  9. gregorylent

    participatory entertainment … family in the parlor 2.0

  10. CliffElam

    The wife and I were watching the 7th episode of House of Cards last night (*ahem*) and she turned to me and said: If I were HBO this would scare the crap out of me.I agree. And for us, the whole-season dump works great.-XC

    1. Matt A. Myers

      I think content is about to get a lot more awesome too, as does happen when you have more competitors in the ring.

      1. CliffElam

        I hope so. Hawaii-Five-O just did one of those “vote for the ending” things. What was neat was that they put the top two winning episodes on the On Demand channel, so you could watch both afterwards.Neat._XC

        1. Matt A. Myers

          Cool idea.

  11. Scott Barnett

    I’d rather see Amazon Prime, Redbox/Verizon Instant start to come on than simply promote Netflix. I am personally not a fan of Netflix, and still steamed about their unbundling and price change last year – what a horrible way to treat customers, and I won’t give them a chance to do that to me again.HBO should open up their platform, and they shouldn’t have or need to wait for a competitor to show them it works. HBO started when there was no on-demand movie options, and totally disrupted that market. They should be smart enough to know that they shouldn’t let somebody else do it to them now…

  12. Dave Hendricks

    HBO is a great success at creating content. But what do they know about their consumers? Probably next to nothing.Both are subscription models, but Netflix has several advantages: they have your email address (big deal), they know your viewing history, they have the permission to contact you and there are no cable companies in between them and the customer.Getting content right is hard. But that can be bought/hired a lot faster than anyone can build a customer database and history as powerful as Netflix.Netflix is competing with Amazon in this respect. In fact on my PS3 and iPad can check/compare content avails side by side from Amazon and Netflix but HBO is no where to be found. I doubt HBO even knows who I am.Subscribers are important. Netflix has ’em. HBO has relationships with cable companies I think HBO needs to disintermediate cable cos to compete. Netflix might have the long term advantage.As long as Reed H doesn’t send out another bad email, that is.

    1. Matt A. Myers

      HBO would have to copy Netflix’ model – except Netflix has done a good job at being first to market.I think the best HBO could reach for / obtain is, instead of dying, at minimum best duplicate Netflix and other competitors – leveraging that they have more quality unique content they’re producing – so they can at least compete.

      1. Dave Hendricks

        My main point is that Netflix, like amazon, has a direct relationship with the customer and that is a superior position to be in, even while the pendulum has swung to a place where content producers (Marvel, Pixar, Disney) are being more highly valued compared to some tech plumbers. Amazon has proven that plumbing matters and so does CRM. Netflix has plumbing and CRM. HBO has neither, and I don’t think this is something that’s easy for them to fix.

        1. Matt A. Myers

          Agree, it won’t be easy for them. They need to find someone they can trust to do a good job, and I guess willing to compensate them for such.

    2. fredwilson

      business model matters!!!!

  13. Tom Labus

    I’m going with the 49er’s although I don’t like either team a whole lot

    1. fredwilson

      i am going for the Ravens but feel similarly to you Tom. i am not that interested in the game but the Gotham Gal’s chicken wings should be killer.

  14. Abdallah Al-Hakim

    I think HBO will eventually change their model when it makes economic sense. Their biggest advantage is the high quality produced content which be their trump card as their develop their online distribution method

  15. JamesHRH

    Many people in startup land fail to properly define the enemy. Defining the enemy gives your customers an established jumping off point: your company is no longer an idea floating on the Sea of Questions.Kudos to Netflix.They now have customers thinking about why Netflix could be a better HBO, rather than thinking about all the negatives that might be associated with trying Netflix.

  16. shrin

    I think netflix is going to win. they’re in a far better position to achieve the future hybrid version that will be a mix of netflix and hbo. They have the money to hire the talent to produce hit tv shows. They already have the relationships establishede to license tv shows and movies (which is a huge library). as a consumer, I see my 10$/month going farther w netflix

  17. Brandon Burns

    Sometimes you have little control over your business model.I wouldn’t assume HBO doesn’t “want” to have a Netflix-esque model. I would, rather, assume that as a business that’s primarily operating as a cable channel, they are tied to the cable providers like every other channel and have to continue to answer to their whims if they don’t want to be cut off from the windfall of cash they receive from them.Similarly, Netflix probably won’t build solid audiences for any original programming, even if it manages to be good, because those audiences are still birthed via discovering new shows through seasonal television programming, to an overwhelming degree.Netflix may want to be HBO, and vice versa, but the ability to make such moves is hardly dictated by them alone.



  18. Matt A. Myers

    No one has mentioned Google yet in this.Are they not considered a potential competitor?



      1. reece

        is “Grassrooty” a startup name yet? if not, it should be

        1. ShanaC

          nah. Doesn’t do it for me

        2. FAKE GRIMLOCK


          1. reece


      2. Matt A. Myers

        I know they are doing what you’re referencing – though I imagine with their traffic they are positioned well to also be a competitor to Netflix et al.

  19. sharon

    Yes!! Brilliant way of saying it.

  20. george

    HBO is a solid brand and it’s great to hear they are testing new distribution channels but if they wait too long in mobilizing their content, Amazon, Apple, Google, and Netflix will eat their lunch. Haven’t we already seen this play out in the music industry and in streaming video; they need diversity of networks.Netflix should avoid becoming more like HBO; they are not great tastemakers, that could lead to disaster.

    1. anne weiler

      How do you know? They have an awful lot of data about what their subscribers like.

      1. george

        Data doesn’t create hit shows, if that were true, anybody could do it!

  21. Dmancity

    AMZN should consider making a move for HBO. It’s a buy vs. build decision – the premium for a proven brand such as HBO could easily out weigh the trial and error cost of developing a production house from scratch.

  22. nickdavis

    My guess is that HBO, being owned by a cable company, will suffer a similar fate as the Sony Walkman being owned by a music company when the MP3 craze hit.

    1. pjalli

      HBO is not owned by a cable company…

      1. ErikSchwartz

        HBO is owned by TIme Warner. Technically the MSO biz has been spun off from TW.

      2. nickdavis

        My bad, I forgot that Time Warner spun off TWC.

  23. SSG

    People still watch HBO and use Netflix??? How about a far better version of Hulu (larger quantity of quality content and highly improved streaming)? How about an online streaming service you purchase that doesn’t torture you with commercials (virtually all of which are like fingernails on a chalkboard)? This versus “interactive” TV is far more valuable to me, whatever the device. I would certainly pay a higher premium for the peace of viewing, in a heartbeat. At the very least, I’d take a service that demands a better class of advertising and limits the quantity of such (oh, yeah, in my dreams).

  24. ErikSchwartz

    Netflix better make their own content because they are losing the content acquisition game.

  25. Aaron Klein

    I’m still waiting for one of the TV networks to launch their own streaming service. You get each episode two days before broadcast.My bet is that each content producer eventually has their own streaming service and you pay $8-10 each. Smaller players will do deals with the bigger ones to piggyback on their services.I’d subscribe to three or four and have all the content I’d want or need at the same price as my cable bill.

    1. anne weiler

      I have Netflix, and then watch specific network shows streaming. They are available 1 day after broadcast. I have to watch a few dumb commercials but it’s worth it to only see the shows I want, and at the time I want. Not watching sports events makes this easier though. Any gaps are filled with iTunes purchases.Oh, and am in Canada. No Hulu and crappier selection on Netflix but am surviving. 😉



    1. reece

      +1 but not sure YouTube is on the exact right trajectory… and UX still sucks



        1. reece

          cranking away buddy. some fun stuff on the way in the coming monthsall starts on Tue @ NYTM

  27. RudyC

    I totally respectively disagree. First off, the fact that this discussion even comes up tells me that consumers WANT the product that HBO produces. I’m old enough to remember HBO and Showtime starting as channels that showed movies, period.A fews years back they started doing what has given them the most value, privately produced movies and shows. It’s the shows that draws the most attention as the movies people will wait out until the release date.Interesting enough the original pay channel, StarZ didn’t follow this model until recently and is still playing catch up. Today HBO is owned by TimeWarner and Showtime, CBS.When I was in the food business a long time ago, WEBVAN came into our offices offering all sorts of enticements to carry our products. We had heard of them and were very interested in speaking with them. I’ll never forget that meeting for a few things. First off, when we pulled their credit they had a higher ranking that Coke. It blew us away with that. Secondly, they asked us for a 2 million dollar liability policy and lastly they wanted to ‘start’ w/a purchase order of 24. Not 24 trucks or pallets, 24 cases. We thanked them and when they left we started laughing.These guys didn’t have a clue what they were doing. A few years later, just as WEBVAN was going rumored to close down operations, they were still investing their money into re-designing their delivery trucks, shortly thereafter everything closed and everything was sold off, including their well designed vans.The point Im’ trying to make is that HBO and ShowTime are no dummies. They control their content and neither Amazon nor NetFlix is going to take that away. This gives them time to come up with something and wait it out.I would love to see something done but in the meanwhile, I”m still paying my monthly dues to watch Boardwalk and Games….

    1. kidmercury

      every incumbent always thinks the same way. newspapers said the same thing before getting humiliated by online media. pride comes before the fall….

      1. reece

        well said

      2. RudyC

        @kid…spoken just like a true revolutionary drinking the potion…the thing w/original content is that it’s mine and not yours. That means I get to control who and where it is going.Let’s break down HBO since that is where this conversation started. There best watched show is Games w/4M. viewers. HBO has revenue of $1B annually. I’m sure HBO subscribes to the basic premise that 1 or 2 strong shows give them the chance to produce weaker shows w/not much demand but still well done, namely, Girls and Episodes. For views such as myself, I would agree.Again, their revenues increased last year, not decreased. This is not the way of a dying media…

        1. kidmercury

          revenue can turn on a dime. apple’s revenues are increasing too. at a slower rate…..and margins are declining…….hbo does not have a monopoly on the idea of exclusive content. newspapers had original, exclusive content too. in fact they still do.

          1. RudyC

            I get to debate w/the great Kid. “revenue can turn on a dime”, since HBO is subscriber based I would guess if the revenue increased, an educated guess would be the subscriber base increased as well.I was waiting for the newspaper argument. News is NOT original content nor personalities, that made it replaceable. The days of the great columnists are over. Mike R in Chicago, Herb Caen is SF are legendary but gone.All I say to that is still 60 Minutes. News content, original and still has more viewers than ANY internet news medium period.

          2. kidmercury

            newspapers still have exclusive content, in fact they compete on exclusivity and breaking the story first all the time. they also have is widely acknowledged that youtube is taking viewers away from television. one can keep waiting for more and more confirmation, though if you wait for absolute proof, you’ve waited too long.

          3. RudyC

            guess it’s time 4 me to leave this discussion, go buy some beer and watch the Niners (exclusive content) kick some Raven ass on the TV…take care..

          4. Cam MacRae

            it’s not content that killed newspapers, it’s classifieds.

    2. reece

      you have to look at it with the lens of Innovator’s Dilemma and the technology adoption curve…Netflix can come in from the low end with a product offering that is just “good enough” for a large enough portion of the market. they can then build off of that success while improving their offeringmeanwhile, HBO will be forced to try to compete on the low end, but won’t be in a position to do soregardless, the competition is good for the consumergreat post @fredwilson:disqus

      1. ShanaC

        i can understand being fearful when trying to pull a content play. You risk pissing off people when you don’t have the stuff they are looking for

  28. Guest

    An HBO exec recently said that it was ‘the math’ that was holding them back from going direct to consumer. Let me tell you, that person clearly isn’t that good at math. Because it’s not the business model or economics holding them back. I know, as I ran the numbers myself when I worked there; not the ‘official’ model underwritten by the research group data, which just pandered to the prevailing notions in the executive suite (and created a ‘garbage in/out’ scenario to the model), but a clear-eyed perspective, which understood where technology is leading us and how our media behaviors have fundamentally altered. The leadership there are 20-30 year vets with no incentive to alter the direction of their cash cow. Understand, their numbers are not declining and they remain very profitable. Why would you change course and possibly disrupt good financials (at a public company subsidiary, which reports quarterly), just as you’re about to be pensioned off with a fat windfall. They kid themselves with excuses such about affiliate threats and channel conflict, direct marketing and billing/fulfillment concerns – all true challenges, but not insurmountable (hire IBM, Amdocs, whomever; and HBO actually used to have a D2C satellite business briefly, so there is precedent). What’s lacking is solely this: courage. A courage to see that they are headed to Kodak-villle if they don’t change. The pretend it’s a Gordian Knot that can’t be solved. I argue there is an Alexandrian Solution ready to be seized. They don’t need to stop going via affiliates – they can do both. They already made that compromise historically, as they surmounted upsetting existing partners, in order to move with the evolution of technology – as they went from cable to satellite to IPTV, from affiliate to Home Video and to iTunes. Always the same gnashing of teeth, but always a necessary and ultimately profitable move. They can move at Netflix speed by making the decision to go D2C tomorrow and have it running in 9 months. Sure, affiliates will tamp down the marketing and some attrition will occur. But for a company whose brand is everything, they should understand that the halo effect this would give them for a new generation of users is worth more than a 2 year blip of churn. The need a solution which is bold, simple, strong. An Alexandrian Solution.

    1. LE

      Understand, their numbers are not declining and they remain very profitable. Why would you change course and possibly disrupt good financials (at a public company subsidiary, which reports quarterly), just as you’re about to be pensioned off with a fat windfall.There is a saying that has stood the test of time (as a saying at least). “If it isn’t broke don’t fix it.”This “failed to adapt” is monday morning qb stuff espoused by academics and writers who will cherry pick cases (like Kodak) and use that to prove their point (like we all do I do it as well).I’ve never seen any study comparing companies and the strategies they followed to determine the amount of times a particular path or way of thinking pays off or not.Your say “their numbers are not declining and they remain profitable”. Then you end with “just as you’re about to be pensioned off with a fat windfall”.I think it would actually be reckless to gamble with something that’s working without clear evidence numbers wise of what is going on. Right now what do we have anecdotal evidence? If your numbers pointed a clear picture why did they not follow those numbers? Only because they are idiots waiting to retire?The newspapers had this for many years and while some would say they failed to react and are paying the price it’s not that simple. If your model is based on money for nothing and the chicks for free it’s not easy to go to having to work hard and change although it’s easy to write about it in cases studies.

      1. kidmercury

        if you wait for proof that you’re wrong, you’ve waited too long.blackberry dismissed touchscreen mobile computingnewspapers dismissed online mediaIBM and xerox dismissed personal computingmicrosoft dismissed SaaS servicesCD stores dismissed mp3 storesthe list is infinite…..history repeats……

        1. LE

          Let me start by saying the obligatory “yes companies suck, people suck, and the often they make the wrong decisions”.But now that I’ve gotten that out of the way, what your examples are failing to recognize is the amount of things that they dismissed that did not come to fruition at all. Where they were right. Stories that we will never hear. As my father would say “he tells you all the stocks he bought that he made money on, not the losers”.We know where they were wrong but do we know how many times they were approached or considered something and nothing ever came of it? That they were actually right?This same thinking comes into play every time someone says that they went to a doctor who dismissed their complaint and poof it’s cancer and the doctor missed it! So obvious. Do we have data on how many times the doctor was right? Of course not.Likewise we don’t know how many other Wozniaks approached HP with some idea that, given the way things looked at the time, didn’t appear to have any promise do we? We only know the one that got away.My wife and I were watching some show (I think 48 hours) about a missing person recently who ended up dead. And in it came the standard family with “we told the police x but they said they had to wait for 24 hours before searching and if they started when we told them she would still be alive.”So a simple minded person says “wow the police were wrong they really suck – police suck”. I say “well must be from their experience that most of the time the person resurfaces and the times they don’t are total outliers”. Which is not to say as I started off this reply that police don’t make mistakes – they do. But to imply that police aren’t following some known pattern because from their experience no matter how many times the family says “it’s not like her to leave her kids she would never do that” they have frequent examples of how that actually does happen (and limited resources just like companies) and can’t be run all over the place – they have to use their judgement. It’s easy to take pot shots when you know the outcome and point fingers.By the way IBM didn’t necessarily dismiss personal computing. IBM was blind sided by the fact that new startups were willing to sell suckier hardware, software not fully tested and working, and products with the type of support that IBM could because of their reputation. And guess what the market wasn’t there for PC’s it had to develop over time and IBM had valid business reasons for not wanting to legitimize that market. The PC in 1981 (I was there) pretty much also ushered in the era of shove the product out and clean up the mess later. IBM couldn’t compete with that in the end. You can’t compete with a public willing to accept crap and aggravation. Apple had a hard time doing it until certain events came together.Guess what? I gambled lots of money on Desktop Publishing in the 80’s and I was right. But I could just have easily been wrong and gone down the tubes. If you’ve actually gone through a period where you have to take a look and make a decision on direction based on the way you see the world you will realize that the path is usually not clearly cut. (Especially when you are focusing on the up and not the downside of things).

          1. kidmercury

            the point is they dismissed the trend shift. that they got previous trend shifts right before they were incumbents is not disputed, and if they made enough money during then good for them. missing the trend shift inevitably leads to a decline.

    2. ShanaC

      thank you for speaking out. Considering that you know the numbers, do you think a studio style system will survive moving to all/mostly digital?

    3. fredwilson

      wow. this is what comments are all about!courage – indeed

    4. Abdallah Al-Hakim

      Thanks for the insightful comments. I was listening to Seth Godin talking about the folly of trying to sell to large corporations and one of the problems is that the main concern for top executives is how to hold on to their job. As a result, innovative changes or anything that seems like it will ‘rock the boat’ is not desirable!

  29. David Petersen

    A great TV show is like a gift from above. Godspeed, Netflix. If you manage to make even 1 excellent show, I will throw my credit card your way and you can bill it forever.

  30. JLM

    .This is such an interesting discussion for a number of reasons:1. Focus on the fundamental business model and basic business decisions related to content and distribution and pricing.2. The importance of strategic planning and tactical execution. It is like watching the big armor battles on the eastern front in WWII. Huge map. Big units. Obvious and apparent moves and counter moves driven by real obstacles (rivers). The logistics of operations matters.3. This is capitalism and competition writ large. This is how the consumer gets a better product at a better price with a better delivery mechanism — competition within a capitalist market. You can almost smell the friction.4. There are others waiting on the sidelines to follow up the battle and bayonet the wounded and potentially seize control (Amazon and the cable providers).This is the convergence of complementary technologies becoming competitors — old school television, cable television, Internet, cable access Internet, high quality content and much more.Some fabulous thinking out there. Thanks for the education. Tuition check to follow.JLM.

    1. fredwilson

      The tuition check is the comment. I think I owe you

  31. Rocky Agrawal

    HBO is in exactly the same position that Aol was.As a sub buried inside TWX, they need to deliver the quarters.There were plenty of smart people within Aol that saw social coming and had very good ideas on how Aol could leverage its assets (e.g. AIM buddy list) in social. But executives were motivated solely by meeting the quarter. Investing in innovation would make the quarter look less good, which meant either a smaller bonus or no bonus.When you set up short-sighted comp systems, you will get short-sighted results.Of course, this is also a function of Wall Street analysts and investors who don’t care beyond the next earnings release. (Unless you’re Amazon, then you can do whatever you want.)

    1. Steven Kane

      sorry, what? aol was a dial-up ISP that knew broadband and wireless would literally and quickly destroy its core business. (and did.) hbo is a powerhouse that delivers gargantuan revenues and profits, by creating new original content and licensing other original content, delivered over whatever platform they care to. i think these two businesses are not even in the same ballpark, let alone in “exactly the same position.

      1. Rocky Agrawal

        Aol had many businesses. Even the dial up business was a case where they had a cash cow and they were fine milking the cow while ignoring all opportunities ahead of them that might affect the cash flow.

  32. Adrian Meli

    Given HBO is owned by a company that has a number of other properties that are not unique and may get disrupted over time, the decision to try a new model for HBO is a tough one to make. It would be interesting to see if they would take the same approach if HBO were a separately traded company.

  33. ShanaC

    I see this as a problem of humanities meeting statistics. You’d get a far better handle of how to create and market content if you know why which content appeals to which groups and when. Right now, the owners of the backcatalogs don’t have those numbers.It pays for HBO to hand over that process, as they don’t know. And that is where netflix will eat them.

  34. baba12

    HBO is owned by Time Warner. They have operated the business with no real threat whatsoever and to them Netflix is not a threat. Netflix will have to show it can produce high quality content and make it available on any device anywhere at anytime and show the rest of the operators out there how not to be a cock blocker and douche bag that all these telecom carriers and Hollywood content creators have been for as long as they have existed.

  35. Guest

    While it would be irresponsible to go into the numbers of internalmodels, you can look at reports from by Barclays Capital, Credit Suisse or RBCto get a pretty decent insight to the real numbers, as well as the critical leversin play– subs, ARPU, churn, margins.In broad strokes, while the average price to a user is $15 (on top of their inflated cable bill), HBO get around 50% of that, so $7.50. If you look at the reports, they estimate CLV is 20 months. So, that’s around $150 they give to the affiliates over the lifetime of a sub. Doyou really believe that HBO cannot acquire and maintain a user for less than$150 over a 20 month period? Let me tell you, you’re wrong. And while you couldargue that there are not enough smart TVs or media streamers in market to makeit easy for consumer to stream HBO GO to TVs (because that’s what’s really inplay here, not the mobile stuff, which is table stakes), they could dosomething innovative, like giving away Rokus to those who sign up – the BOM onthe basic model isn’t more than $15-20. They could even share that with othercontent partners like Hulu or NHL. And to say that HBO can’t do directmarketing (currently done by the shoddy cable call center) is to underestimateHBO’s world-class marketing department.But let’s control for operational execution in delivering a D2Coffering. Even if the margins seemed to be a wash, in the final analysis, theonly really important part is – do you lose more from the unsupported affiliatechurn than you gain from the new or switching D2C subs? That is always the bigswing variable in the outcome of the model scenarios from any research. Sure, it’s a risk. But even if they don’t have the courage to jump in with both feet, they could test theassumption outside the USA (as they are doing), or via digital affiliates (likethe may do with Apple, though don’t hold your breath).Also, ignore their PR attempts to dismiss ‘cord-cutter,cord-nevers’ with their own data (just the research department justifyingkeeping the lights on) – the real thing at stake here is converting non-subs tosubs, as well as transitioning existing subs to a controlled platform (HBO GOdirect to consumer). There are 30m subs out of 110m households, not evenincluding next generation users on campuses who are willing to pay or havetheir parents pay. That’s a huge delta. And so, you either believe they canincrementally grow their share, or you don’t. I believe that HBO GO direct toconsumer would actually net positive, after a 24 month painful transitionperiod.But it is reductive to just look at the economics. Otherbenefits are intangible – like getting closer to the consumer (actually owningthe data and relationship would be invaluable – use D2C as a Trojan Horse), aswell as the brand halo and ability to sell future products directly. Andultimately, controlling their destiny. Creating their future, not letting ithappen to themselves, under the creaking affiliate system.And let’s not be naïve – the affiliates will be fine withoutHBO. We overstate who much affiliates would care, beyond egos. HBO used to becritical to their businesses, but now it’s basically a rounding error. So HBOis like an abused spouse, unable to leave a relationship in which their partnerno longer really values them. And in the meantime, the cable companies keepmaking 90% margins on their broadband products and will keep jacking up theprice to offset video bundle declines. Cry them a river. And actually, good forthem. They deserve a robust business, given the enormous investments they havemade in the country’s infrastructure. They are not a sexy business, but theyare as critical as any utility.So again, it comes down to courage of conviction and abelief in the value of their core product – the content. And finally, they havesome executives who could make that happen. Richard Plelper is taking over fromBill Nelson. Nelson, ex-military, ex-COO/CFO, was foisted to the top to replacethe epic, violent, alcoholic flame out of Chris Albrecht (who ushered in theglorious creative era of Sopranos, The Wire) and steady the ship, especiallyduring the downturn. No room to take risks in that time from 2007-2012. ButPlelper is a smart, political operator who has enough narcissism in him that hecould risk the company’s future to create his own legacy. I mean that in apositive way. As much as he is a perma-tanned, Vanity Fair regurgitating, Hollywoodcaricature, who wouldn’t hesitate to make out with Cindy Adams in the bathroomat Michaels if it would secure him a puff piece in tomorrow’s New York Post…heis also a super-smart, bold, risk-taking, insurgent, cerebral, cheerleadingvisionary for the brand (and I am joking about his caricature, as in truth, heis a fiercely intelligent, affable dude, who adores his family). He could takethe company direct to consumer. But the longer he waits, the more entrenchedhe’ll be and the less likelihood it will happen. And figure also the new CTO,Otto Berkes, recently announced. In him, the company has a CTO who is actually ableto turn on his smartphone, not least be able to root it, resolder the PCB orbuild an app. (Side note, a couple of years ago at a TW senior leadershipmeeting uptown, all the execs were given an iPad – but then had to hire a paidconsultant to show them how to install apps on it. Seriously). Berkes actually has the chops to deliver operationally, technologically, if he is not hamstrung by the current leadership. While his ‘engineer awkwardness’ is a phony smokescreen to his ruthlessness, it is backed up by a steel-trap mind and actual vision.Schumpeter, creative destruction, create your future, don’tlet it happen to you.So, come on, HBO. Have a drink, close your eyes and stepover the cliff…

  36. Guest

    Also, to be clear: HBO has no more/less a mix of assholes, jerks and dipshits than any other media company. It actually is a very comfortable, pleasant, good place to work, with a lot of decent, smart, hard working folk. But it’s maybe a bit too comfortable. And they have an opportunity and the means to do something kickass and lead from the front. It doesn’t always have to wait for a disastrous, burning platform situation.The clamor we see in these news articles, blogs, comments is actually borne from fans rooting for the fucking brand, not wishing it to fail. So, they might want to act on that positive sentiment, not squander it, not insult their biggest cheerleaders by calling them naive about the business. We get it. Do they?Also, this:

    1. fredwilson

      yes, i am rooting for them to have the courage to take their brand into the future

  37. Kartik Hosanagar

    i wish it were that simple to be in the content business. It may be a while before Netflix figures out how to be a hbo.

  38. Chris Mottes

    Quick observation from Denmark (that’s in Scandinavia, not in SC, WI or ME 😉 – Netflix: $15/month, multiple devices connected at the same time – some good series, shitty movies. HBO: $25/mnth, 1(!) device at a time – more good series, shitty movies….deciding factor? MULTIPLE DEVICES CONNECTED AT THE SAME TIME!

    1. fredwilson

      all devices. an open API so that any developer can put your service on any device. why not let folks who pay you use your product anywhere?

  39. Dan Epstein

    Not having done either, I’d guess it is easier to build a great content delivery system than to write great content. HBO Go is a great user experience, perhaps equal to Netflix.If (when?) HBO wanted to become Netflix, I think they could do it pretty quickly.

  40. falicon

    The beauty of HBO’s model is that it’s not a VS. model at all…because of the org. content, it’s a AND model…if all these services were just about a standard archive of content and on-demand streaming, I would ultimately just have one (and that would prob. be Amazon for many of the reasons @kidmercury:disqus mentions)…but ultimately these models are all about the content (and the taste) and so I’ll end up having multiple (right now I subscribe to Prime, Hulu Plus, and Netflix — and I would also subscribe to HBO if they would let me do it without the insane TV/CABLE requirement).HBO has always crushed Showtime and the other players because they’ve had better orig. content (and did a better job of getting exclusive deals to other content first/longer)…

  41. PhilipSugar

    I think Netflix’s genius was they got people used to paying them directly a monthly fee for streaming. I said this in 2011 http://justanentrepreneur.c… when everybody was up in arms about how sending DVD’s was no longer free. An absolute genius move not executed very well. But it was a big risk move, look at the stock price, and the blowback.So now they are just saying we’ll add another content provider for $.50 it will just be me! People want to get lots of aggregated content not just one provider.I think HBO’s challenge is that they don’t get people to pay them directly they get paid by the Cable and Satellite TV companies as part of a package. They also are not an aggregator. That is the challenge for them. (as well as risking their cash cow as ex-HBO employee points out)

  42. Clay Hebert

    Some interesting financial numbers in this Atlantic Wire article.http://www.theatlanticwire….tl;drNetflix spending a reported $100 million to produce two 13-episode seasons of House of Cards, they need 520,834 people to sign up for a $7.99 subscription for two years to break even. To do that five times every year, then, the streaming TV site would have to sign up 2.6 million more subscribers than they would have. That sounds daunting, but at the moment, Netflix has 33.3 million subscribers, so this is an increase of less than 10 percent on their current customer base.

  43. Alan Wolk

    It’s just as likely that the dynamic is reversed: Netflix wants to become HBO and have the MVPDs collect large sums of money each month for them.Remember that HBO has a very cushy deal: the MVPDs collect money for them each month (so no customer service issues, no collections, no one blaming them when things don’t go smoothly) and the byzantine packages the MVPDs offer get them many additional customers– people who just want to watch Homeland but need to take a package that includes SHO and HBO, people who signed on for the “3 free months of HBO” and forgot to cancel it, people who signed up to watch the Sopranos in 2008 and never got around to canceling.The MVPDs also promote HBOs shows for them (not regularly, but they do), provide them with prime channel slots and authenticate viewers for HBO Go for them.Don’t underestimate the value of all of the above: it allows HBO to focus their marketing messages on promoting the programming and also allows them to avoid the headache of dealing directly with customers.I can’t but wonder if Netflix looks at that cushy deal and thinks it sounds a whole lot better than chasing down 20+ million people for $8 every month.


    Really interested in how this market will evolve. More competition is always better for the consumer. Netflix might have to come up with new innovative ideas to keep their standing.

  45. leigh

    Talking to a bunch of content producers and it seems that many of them are pitching netflix first. Unless HBO opens up it’s apps outside of the core Cable providers, Netflix has a real shot at continuing to disrupt. Recognizing that many pple don’t see the technology as break through, it’s hardly the point. It’s easy to use and if you can get the US stores content (vs. crap content from Canada) it’s an incredible value for the money.

  46. Elie Seidman

    College friend of mine went to Netflix – from George Clooney’s production company – to lead a big part of their original content effort. Their new show – House of Cards – seems good; based on the first episode at least. Kevin Spacey is fantastic.

    1. fredwilson

      i have been watching it. i am hooked.

      1. Elie Seidman

        Looks like this will be a good weekend to binge watch it. I love how they’ve released it all at once.

        1. fredwilson

          it is awesome the way it works, you just go from one episode to another, its addicting


    The best line was in the end. ” if you want an HBO that looks like Netflix, support Netflix’ efforts to look like HBO.”I love HBO dramas but I never actually had HBO. I always had to wait for them to come somewhere else. Now, I am in a house that does not have cable so Netflix is my TV. I would so love HBO to become like Netflix then I can watch it without the cable.~Yvette

  48. fredwilson

    House Of Cards is really good. Watch it and you may change your view

  49. Robert Holtz

    Ten days ago, I would have been 100% in agreement with you. But as @fredwilson:disqus rightly points out, HOUSE OF CARDS is really good.In fact, I wanted to watch it expecting it to be terrible and I was hooked from the very first episode. I have watched through to the 9th of 13 chapters. Kevin Spacey is masterful as usual. David Fincher directed the first episode and executive produced all of them. Several big name directors helm the others including Joel Schulmacher. Robin Wright plays her role exquisitely. The story and dialogue are spellbinding. The way the show is shot, cut, and scored… all top shelf.It is a true show-of-force for Netflix as a content creator. They didn’t waste time with indy-level work. They went right to top filmmakers and made a first rate production. If Netflix can maintain this kind of quality for their future productions, this model will succeed.