HBO and Netflix – Getting Back to the Future
Thomas Schatz / University of Texas

Logos

Media Companies Netflix and HBO

One of the most significant and disruptive forces in contemporary television is of course Netflix, which steadily pivoted from “flix” to TV series as its primary online product in recent years, changing the ways we access and watch TV, and then barged into the high-stakes original series programming derby in 2013 with House of Cards and Orange Is the New Black. In the wake of those series hits, Netflix’ co-founder and CEO Reed Hastings began referring to it as a “web-based TV network,” while television critics and media pundits are heralding it as “the next HBO.” The fact that Netflix could be mentioned in the same breath – and the same context – as HBO is not all that unreasonable. The entertainment providers boast roughly the same number of subscribers in the U.S., just under 30 million each, with the Netflix numbers continuing to climb while HBO’s have long since leveled off. And Netflix’ revenues (if not its profits) are approaching HBO’s as well. “If Netflix were a cable channel,” The Economist recently reported, “its subscriber revenues in 2013 would put it third in America behind ESPN and HBO.”1

House of Cards

Viewing Versatility of Netflix Original Series House of Cards

Orange is the New Black

Netflix Original Series Orange is the New Black

A delicious irony here is that HBO spent all those years (and marketing dollars) insisting that “It’s not TV,” while Netflix has been equally insistent that indeed it is a TV network. The fact is that both HBO and Netflix represent significant variations on the ancient broadcast television model – and especially the business model of conventional commercial television – but both are also staking their futures on that most traditional of television products: series programming. Thus the success of both HBO and Netflix speaks volumes about where “television” seems to be headed in the new millennium, while signaling the persistence of the medium’s most fundamental characteristics. And while there’s some validity to the notion of Netflix as the next HBO, the differences between the two dominant “new networks” are illuminating as well.

One key difference, of course, is the relationship of each company to conglomerate Hollywood and the mainstream movie industry. HBO began, like Netflix, as a movie delivery service (owned by Time, Inc.), launching the first nationwide pay-cable movie channel in 1976. That wildly successful was a key factor in the 1989 Time-Warner merger, although it would be another decade before HBO really came into its own – in 1999, to be precise, with its breakout success of its original series, The Sopranos. That was not HBO’s first original series, but it was its first bona fide hit (on DVD as well as cable), prompting the network’s rapid, aggressive shift to original series as its principal and defining product. That move transformed HBO and assured its eventual stature as the crown jewel in the Time Warner empire. It is now far more profitable than Warner Bros., despite the studio’s leading market share in the movie industry, and HBO is far more profitable than the major television networks as well.

So HBO did provide a template of sorts for Netflix, both in its shift from movies to TV series as a programming staple and its venture into original series production. The two share another key characteristic as well, in that both operate as “premium” subscription services. The two companies reinforces the well-established equation in commercial television between quality programming and quality demographics, but in this case the key concern is not CPMs (cost-per-thousand viewers) – i.e., how much sponsors are willing to pay a network for the audiences delivered to its commercials – but rather how much money discerning, upmarket viewers are willing to pay for content (minus those pesky commercials). It’s worth noting that nearly all TV viewers (86%) are subscribers in the form of cable fees, but less than a third are paying premium prices for HBO or Netflix. An intriguing question is the extent to which the two audiences overlap; I assume that I’m one of millions who subscribe to both services, which I consider distinct, complementary, and indispensable.

An obvious difference between the two companies of course is Netflix’ online streaming operation, which is proving to be better suited to TV series than movie content. As Tim Wu aptly notes in a recent article on Netflix in the New Republic, “Nearly all scripted shows become streaming shows, whether they are produced or aggregated by Netflix or Amazon, CBS or a (finally unbundled) HBO – or even on unexpected entrants such as Target, which recently launched a Netflix competitor.” Wu argues that the key to success for these “new networks” is their ability to “make the right original programming decisions and secure the best old shows.” These two objectives go hand-in-hand for HBO and Netflix – indeed, they are one and the same for HBO, which is precisely why it is not likely to “unbundle” its service anytime soon. And it also explains why the two stand alone atop the throng of new networks in the digital age. HBO and Netflix have staked out the high ground with their original series, and both have cultivated a reputation for “prestige programming” that is essential to their network identities and their popular and commercial success. HBO’s original series track record has been astonishing, at it remains to be seen whether Netflix can sustain the momentum created by House of Cards and Orange Is the New Black.

HBO Go

HBO GO, Streaming Service from HBO

HBO did move into streaming in 2011 with HBO GO, although its library holdings are limited – and are dominated by its own original series – while the service is available through cable providers rather than online. Thus HBO GO seems designed primarily to accommodate series late-comers and binge viewers, two other qualities heavily associated with Netflix. But one could argue that HBO really started both trends back in December 2000, when it released the first season of The Sopranos as a DVD box set just weeks before the rollout of season two. The full-season DVD set was a phenomenal success, intensifying HBO’s commitment to original series and encouraging its programming executives to rethink their assumptions about both series scheduling and patterns of television viewing. Netflix, in turn, has taken binge-viewing practices to another level – and has pushed the term into the popular discourse – in its promotion of series like Breaking Bad and Mad Men, and in the strategic coordination of its full-season streaming releases with AMC’s rollout of new seasons.

The veritable partnership with AMC in the marketing and dual launch (on cable and the Internet) of its hit series has been crucial to Netflix’ climb in recent years. In fact its streaming of Breaking Bad may have been even more important to Netflix’ recent surge than its original series. This also points to a decided advantage that Netflix enjoys over HBO, in that it can acquire programming from literally scores of other networks. The tradeoff for HBO is that it owns its series and its increasingly estimable library, and thus along with AMC is one of Netflix’ most important upscale suppliers. Both HBO and Netflix are buyers of talent as well, in that both are paying top dollar for original programming – a new twist on the “deficit financing” strategies that fueled of the major networks in their heyday. And more than any other networks, HBO and Netflix are cultivating new talent while hastening the migration of established filmmaking talent from movies, particularly the fading indie-film sector, to TV series production.

Filmmakers are migrating to television for the same reasons audiences are: better product and more of it. Hollywood’s ever-intensifying commitment to mindless blockbusters and global movie franchises is steadily disenfranchising both discriminating filmmakers and discriminating viewers, who are finding one another on HBO and Netflix. And both constituencies are hooking up on their own terms – top talent freed from the constraints of high-stakes motion picture (and major network) production, and viewers freed from the constraints of regular programming and commercial interruptions.

This latter point is perhaps the single most disruptive innovation of both HBO and Netflix, and one that may well signal a fundamentally new direction for the medium of commercial television. Each has developed a business model that blatantly rejects the principle of ad-supported programming – along with the obvious assumption that television is first and foremost and by its very nature an advertising medium. The irony here is that Netflix as an online service has developed a more efficient means of measuring its clientele than any other television ratings outfit, and that its routine collection and assessment of “big data” is something that the traditional networks (and ratings services) would pay dearly for. So far Netflix has eschewed the ad-driven paradigm, and thus perhaps comes closer than any other network to giving viewers what they have always been promised but have never been given: what they actually want to watch.

Image Credits:
1. HBO/Netflix
2. Orange is the New Black
3. House of Cards
4. HBO GO

Please feel free to comment.

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  1. “Thinking outside the set-top box,” The Economist, December 14, 2013, p. 69. []

12 comments

  • Ashtyn Karachristos

    For years of being an active HBO viewer and worshiper, it was only recently that I have slowly come to terms with Netflix becoming the alpha male in premiere television. While HBO has dominated television for many years, Netflix has been able to rise up using HBO’s climbing tactics and have slowly been able to beat HBO in it’s own game. While HBO is still creating amazing programs such as the recent premieres of Looking and True Detective, Netflix has been able to extend its demographic by creating multiple original programs in various different genres. This can be seen with the ever popular comedy Orange is the New Black and Horror/ Thriller Hemlock Grove. While these shows might be able to also survive on HBO, Netflix has been able to extend it’s programing by teaming up with other production companies such as their new children’s program Turbo: F. A. S. T. to which they have teamed up with animation giant DreamWorks. Further proving that they not only can create popular strong programming, but also not be strung down by the stigma and expectations that is their brand.
    While HBO has been able to step up to Netflix’s encouragement to live streaming and “binge-watching”, HBO GO has yet to step up its game and really set a foot in terms of online viewership. As mentioned in the article, it seems that the online service is rather that a service to allow viewers to keep up with their favorite programs without feeling the need to catch it at the appropriate time. It has also been a way for viewers to become more interactive with their programming such as in-depth interviews with the cast as well as behind the scenes previews of future episodes and seasons. While Netflix has done a small amount of this, especially for the marketing for the reintroduced season of Arrested Development, HBO GO has transitioned into more of an interactive viewing experience rather than just a website for streaming. It will be interesting if Netflix will go further in using this formula as they have followed HBO for so long.

  • With so many different ways of watching television, Netflix and HBO are at the cutting edge of today’s television platforms. Netflix has only been a dominant player in media distribution since recent years, while HBO has had a main stake in premium cable for decades. Both companies have adapted to the constant technological changes in today’s world. The popularity surrounding these networks can also be traced to their strong brand identity. In an industry that is saturated with a plethora of different networks, it’s crucial for a network to have a brand identity that appeals to consumers and is consistent. Netflix promises to deliver to consumers what they want, when they want it. By combining a user-friendly platform with a no-nonsense way of distribution, Netflix was the first platform allowing subscribers to binge-watch, avoid commercials, and catch up on series they are behind on. This Silicon Valley-esque concept of streaming-based distribution rejects the original principles of television; the network is not beholden to advertisers. But let’s face it, Netflix makes the life of the consumer a lot easier. In addition, Netflix’s original content strengthens their brand identity and appeals to new consumers. By partnering with networks such as AMC to add shows like Breaking Bad to their collection, Netflix is building a sense of loyalty among it’s sophisticated subscribers – viewers with disposable income who expect better quality T.V. without limitations. These subscribers have access to full seasons of shows like Breaking Bad, soon after they are aired on regular television.

    HBO watched how a streaming-service such as Netflix could change the landscape for television, so HBO launched a similar platform; the main difference being available content. HBO-go’s success stems from HBO’s exclusive, high-quality content that has always been coveted by the sophisticated viewer. The fact that HBO’s amazing T.V. series are available to watch conveniently on HBO-go, puts HBO near the top of the list of competitive networks in the industry. I find it interesting to see how Netflix and HBO are shaping the way we watch our television. It’s apparent that these two networks have the most influence in a constantly changing industry.

  • While reading this article I was surprised at how perfectly I, myself fit into the molded T.V. viewer that HBO and Netflix are trying to appeal to. I am a binge watcher. I put an HBO originally produced show at the top of my favorites list. I use Netflix everyday, but not for movies, for television. I watched all of Breaking Bad in a few weeks and I watch Everybody Loves Raymond every night before bed. I use HBOGO for catching up on Boardwalk Empire and Netflix on a daily basis. Netflix is how I watch T.V, (I don’t have cable) but HBO shows will always be my favorite.

    All of these viewing practices I have just discussed not only reflect my habits, but those of millions of other subscribers, proven through the success of HBO and Netflix. These practices that make these media conglomerates among the most successful play on aspects of the undeniable, uncontrollable human instinct of needing to know. Through social media and instant, constant communication, people are in a constant practice of sharing ideas. Humans are curious and have an uncontrollable want to know everything. This is the reason people can’t help but to stop and look at an accident on the highway. Through smart phones that allow for text messaging and instant social media access, there is constant chatter. The chatter is focused on a variety of topics, some which include media itself. My sister could not stop talking about Breaking Bad. Until about a month and a half ago, I hadn’t seen a signal episode. With my Netflix subscription, I have since seen all five seasons. Everyone, not only my sister, was talking about this show, so much so that I had to know what it was all about. Curiosity is a part of human nature.

    This human instinct to know also leads people to binge watching. Viewers become unable to leave Netflix.com and HBOGO.com because they have to know what happens next. Many of these series end their episodes with cliffhangers and the viewer is left dying to see what happens next. When the next episode is only a click away, it is hard to resist watching just one more episode, which often turns into more than just one. The practice of binge watching not only fulfills the viewer’s curiosity, but also catches them up to date on the season. This allows the viewer to chat about the show with their friends and family to be able to feel like an active member of society.

    HBO and Netflix are able to look at viewers (like myself) and see what we want and need. They are two media conglomerates that have done this the best, which is why their series are still among our favorites. HBO allows us to watch the sex and violence that cable channels will not let us see while Netflix allows us to watch the show everyone is talking about as well as a few episodes of an old favorite on command. These companies are going to continue to do well because as the article concluded, people are getting not only what they want, but also what they need.

  • This discussion on HBO and NETFLIX is an interesting one, it illuminates the changes being made to television. The new media revolution is altering the formal network based landscape and this article shows us that most of these changes have occurred in the past five years. How dramatic has this alteration to the television medium been for producers of content and audiences? This article is also interesting because it blurs the line between the supposed HBO and NETFLIX dichotomy; what really changes about television other than its distribution? This link between production and audience; the distribution framework has seen a large evolution due the web based distributors who have effectively filled in this new media space and delivered classic and new content to viewers. I maybe missing something, but I’m inclined to think this article postulates that the television medium is sure to stay and thrive through this new media era of convergence and new technologies. Perhaps that’s why many call this era a golden one for TV producers, because the demand for these products have manifested themselves in loyal niche audiences, and binge viewers. Many seeks to stay in the loop of the latest TV series, and many more consider the viewing of TV series as an activity comparable to other forms of entertainment or even as an intellectual activity. A lot of high quality programs that come from both these companies require a frame of reference and some knowledge on culture and current affairs to fully enjoy and understand their stories. The demand of TV is only increasing and its no longer up to traditional broadcast and cable networks to set the rules of the game, moreover the liberation gained by audiences through these web based platforms have brought audiences closer to their TV demands. Those who should worry are advertisers and older network styles, because the 30 second ad is dying. If I can’t fast forward it on my TV’s DVR, I mute the commercial, and in the off chance that my web browser’s ad blocker doesn’t silence the ad, I oscillate on the web until I can continue to view whatever video or tv series I was in the middle of. The astounding thing about NETFLIX is how it cuts out these advertisers, an audience members dream, and provides direct and unlimited access to their products. HBO, the greatest of all premium cable networks, cut out the ads, but now because of NETFLIX, they must provide their content on-demand.The HBO not being TV, but being something more is just playing semantics, and NETFLIX helps us understand that. TV is what the en masse wants, the delivery of these products is crucial. The points in not if HBO is not TV or if internet’s NETFLIX is something other than TV, its who can produce and distribute TV in the most effective manner possible. Some things remain the same, audiences want quality original programming, and other things are changing like the advertisers and even the film industry. These two latter industry’s will probably have some weird symptomatic hiccups in the next five years where a lot of change and experimentation will be necessary for their survival and cohabitation with the ever growing and culturally significant medium of Television.

  • Gabrielle Ramirez

    I never in a million years would have ever thought that HBO neither could, nor would, ever be compared to Netflix. However after reading this article I have come to realize that the comparison between HBO and Netflix is not far from one another. I myself have both Netflix and HBO, both of which I thought were far over rated when first launched. After experiencing each network for all it has to offer I honestly could not see my everyday life without it. Both networks are brilliant creations for three primary reasons: affordable, extremely broad selection of premium shows/films available on demand, and no commercial interruptions.
    With HBO now being one of the number one options available upon cable bundle pack purchases, HBO has now become extremely affordable for most homes. Now with the HBO GO, HBO is now even more openly available than it ever has been, and with the hit shows that we have today, for example Game of Thrones, HBO has sky rocketed in its consumers. Netflix is also extremely affordable; $8.00 a month for instant streaming, and only $6 more to have a wider selection of DVD’s that actually be delivered to our home. So we have fast, affordable, convenient. Now day’s people would like to enjoy their evening shows and or favorite films with their families in the comfort of their own homes, with no annoying commercials to interrupt our viewings/ family time, and now HBO and Netflix have made that possible. I believe these networks are going to continue to flourish over the years to come.

  • When push comes to shove, HBO GO has made it possible for people who television critics and analysts to link the pay per view network with the “web television provider” Netflix. What began as a new way of delivering films to viewers at home has now fully evolved into a web based television network. The article goes on to talk about how HBO essentially created the template for making great television. It has become a template that AMC started to use and netflix was able to see marked success of by the way that people would choose “binge watch” the television shows.

    The idea that Netflix has made the leap from being a supplier of movies and films that were made by other networks and studios, to making their own films shows a clear link that they saw in people who enjoyed fantastic television shows and that they want to have the ability to watch all of the episodes at once. Netflix has now chosen to dedicate 3 billion dollars in the next year or so to the production of television shows and content. Netflix saw that they were limited to the ups and downs of the shows that they hosted on their website. In my mind the day that netflix chose to release a show like house of cards was the same day that a ticking clock was put on network television dramas. I say this because it has now become obvious that no network television show can produce the same levels and drama, at such a high level of quality as other networks like AMC, Netflix and HBO can with their resources.

  • I for one never understood the comparison between Netflix and the rest of the television industry. Netflix portrays itself as a “web-based TV network,” because it is looking for legitimacy, and giving away a sense of familiarity. Netflix original programming can be nominated for Emmys, that is great for Netflix because it’s make them part of a well respected institution. Netflix knows that it would be better off associating themselves with the television industry, instead of coming across as going against the mold, and facing hostility from many quarters in the entertainment industry.
    One important factor that many people don’t consider is the fact that Netflix doesn’t compete with other television channels. Even HBO has to compete for viewership with basic cable and broadcast. Netflix’s only direct competitor is Amazon, which has yet to find its holding in this volatile new medium. As the author pointed out, Netflix can track every single subscriber, they know what their customers are watching and what times. Netflix has access to the kind of information HBO (or any other channel) will never have, until it makes the switch to web-based only.
    Season 4 of Arrested Development is a great example of why Netflix is not television. For Season 4, Mitch Hurwitz said, “Right before the show came out, I thought, I’ve really not said what this is, and what it had become was a novel. I had this unique opportunity here — people are going to get to watch eight hours of this, they’re not gonna spend the next six months of having it doled out to them … so the storytelling changed. That first episode became much more like chapter one of a novel than episode one of a series.” Hurwitz went on to say that his original intention was to make the show in format where you could basically pick any episode to be your first episode, in other words, you don’t have to watch the show chronologically. I think that kind of format makes sense only on Netflix, I don’t see HBO doing something like that, or any television channel for that matter.

  • HBO and Netflix eschewing ad-supported programming is certainly one example of breaking with traditional television, yet another that should be considered is the ubiquity of the platforms on multiple devices. I can watch Netflix through nine different devices in my home, with HBO (through HBOGo) available on several as well. Netflix’s aggressive pushing of their software from iOS and Android devices, Roku boxes, video game consoles, and smart TVs is extremely smart to ensure as wide a net of connected viewers. Doing so bridges the gap between traditional viewing on larger television sets and watching on smaller, less inviting computers or laptop monitors. In doing so, Netflix and HBOGo provide an opportunity for emulating living room viewing, possibly even inviting a resurgence for greater shared televisual experiences. When Netflix streaming first became available, a web browser was the only way to view content. Within a few short years, the widespread availability of Netflix beyond the computer underscores the intention of pushing web-based TV into the living room.

    Of course, the mass proliferation of Netflix apps is helped by another major appeal of the service: the buffet-like assembled content from a variety of producers. Netflix holds a competitive advantage over HBO in that they showcase television programs beyond those assembled in-house. By maintaining only original shows and riding the decade-long perception of “It’s not TV,” HBO has a firm brand identity. Netflix, on the other hand, seems less sure of itself, acquiring past seasons of popular shows like Mad Men, less popular shows like Destination Truth, and debuting its own original programming. The quality bar for Netflix varies much more with its vast library, and might it be possible that the quantity over quality approach could develop as a detriment to the brand? A joke I’ve seen tossed around recently is that there’s so much to watch on Netflix, yet one can often never decide what to choose. Isn’t this similar to the attitude that developed after the proliferation of cable television, with its hundreds of channels but nothing on mentality? I’m certainly not denying the financial value of Netflix, which is difficult to argue. In these relatively early stages of web-based television, a solid brand seems less vital. But in the years and decades to come, a more solid brand foundation may be necessary for Netflix to maintain its success.

  • Although different in many ways, there are numerous interesting comparisons between HBO and Netflix.
    HBO started as a content distributor in the US, was very successful, and branched out internationally. It now has a massive international presence, with an estimated 100 million subscribers worldwide.
    Netflix started as a content distributor in the US, has been very successful, and is branching out internationally. For example, House of Cards is seeing a welcome response in many nations.
    Each company started from a basic distribution model and evolved to creating content.
    To argue that HBO is more profitable ($1.8 billion in operating profits in 2013, compared with Netflix’s $228 million) or has a larger presence or greater library is rather silly, since it’s been around for decades. Netflix is the new kid on the block, and is proving itself to be quite the contender.
    Rivalry? Maybe. They’re each going for a similar market segment — people willing to pay a premium for quality content.
    HBO was a market disruptor in its day. Netflix is now the disruptor, by providing content anytime, anywhere, and its “take it as you like” allowance for binge watching.
    Hopefully, for all of us, they (and others like them) will prove to be great contenders. Because, in the end, who wins? Think of it. Cable networks (HBO, Showtime, etc.) and streaming services (Amazon Prime, Netflix) are spending billions on programming while employing new technologies, giving content creators incentives to take creative and financial risks, and this all results in ever-greater quality programming for… you and me.

  • Elizabeth Haralambos

    It is obvious that the future of “television” is yet to be determined. The strides have technology have left the possibilities virtually unpredictable to the general public, but what is certain is that the future of television budgets and finances are completely shifting. Because of streaming companies like Netflix and special pay-for networks like HBO, advertising has practically become eradicated, much to the viewer’s pleasure. But what will the financial nature of television overall be like in the future? Will the Netflixes and HBOs of the business make cable and regular network television obsolete?

    I predict that, middle class Americans will slowly stop buying cable. Those that do buy cable will only be in it for live events such as sporting events, the news, etc. Scripted television will no longer exist in this format; it will only be available through a subscribed, on-demand platform. This is not to say that the cable companies will go out of business, though. They will just take whatever focus they had on their Television branch and move it into their existing Internet branch.

    What does that mean for consumers? It seems naive to hope that internet prices won’t go up. Companies like Time Warner would be losing an entire third of their profit base, and cable networks will have to become essentially nothing more than websites. They will have to pay their shows and their employees, and now that they will not have advertisements (considering the precedent set by HBO and Netflix) to pay them, they will definitely be charging a membership fee to have access to their content.

    All that said, it seems like our household relationship with television will never be the same. In fact, our relationship will not be with television at all; there will be minimal channel surfing. Our relationship will be with the content itself, and if we don’t like it, we can break up with it by canceling, and find another content website (or multiple) to build a relationship with.

  • Catherine Essenmacher

    While I fully agree with the article’s summation of the similarities and differences of HBO and Netflix business practices, I wonder how long Netflix can continue to benefit and profit from its relationships with other content distributors. Netflix’s positioning itself as a “cable channel” clearly labels them as a competitor for not just HBO, but all television networks including those whose content they currently stream. How long will these networks be willing cooperate and share profits with a competitor?

    For example: in 2011, Starz opted to not renew their deal with Netflix to stream their content. Soon after they launched Starz Play, a service and app comparable to HBOGo. It is clear through Starz’ shift to original programming and app that they are following in HBO’s footsteps. They have demonstrated a clear interest in building up a library of original and fully owned content which they alone can profit from.

    I wonder if this trend will be limited to only subscription-based networks. As of January 2014, ABC and their online streaming service, ABCGo, has limited access to online streaming of their content for the first eight days to viewers either paying for HuluPlus or an affiliated cable provider. Since then other networks are beginning to follow suit, sending the message to consumers that if you want access, you’ll have to pay someone. How long until they begin to think like Starz? If someone is going to be paid, why should it be someone else?

    If all the big media distributors follow the HBO model, as Starz has, what will be the ultimate future for Netflix? Will they still be lauded for giving consumers “what they actually want to watch”? It will likely be crucial for Netflix to shift their brand identity from the “buffet” and focus primarily (if not fully) on their own original programming. While none of us can predict how it will play out, it will certainly be interesting to watch.

  • I love netflix shows and movies. I have been using it from long time.

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