Will Netflix, Inc. Be Really Affected By HBO’s Decision?

Will Netflix, Inc. Be Really Affected By HBO’s Decision?
NFLX Photo by Matt Perreault

Netflix, Inc. (NASDAQ:NFLX) investors have been concerned since HBO decided to launch its own streaming service. There are discussions about the harm or good that the HBO move will have on the online streaming company. Instead of choosing one over the other, some think that subscribers will go for both Netflix and HBO.

No change for Netflix

According to James Schek (via Huffington Post), who works on Netflix’s content delivery network, the HBO standalone will be priced similar to their Nordics offering at ~$15/mo. On an average, a cable TV subscription in the U.S. costs $62/mo, excluding HBO. To analyze the situation, Schek assumes that the price of HBO’s premium channel through cable TV is the same as the HBO standalone.

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Anyone who at present has subscribed to HBO and switches to the standalone and keeps their Cable TV subscription “are not any more likely to cancel an existing or less likely to start a Netflix subscription,” Schek said. “No change for Netflix.”

In another scenario, if users have a cable TV subscription and they cancel it, then they will save $62/mo. According to Schek, some of these will subscribe to another SVOD service like Netflix, Hulu, or Amazon.com, Inc. (NASDAQ:AMZN)’s Prime. This “regardless of how many, a net win for Netflix,” he said

Then there would be some subscribers who use Netflix’s DVD plan to get HBO content, and among them, he thinks a few will cancel their Netflix DVD plan and switch to the HBO standalone while the rest will continue with their DVD plan because they also watch non-HBO content. This case would result in a net loss for Netflix but “with the caveat that DVDs are already in decline,” believes Schek.

Also the population of viewers who get HBO through a friend and family rather than paying for a subscription themselves probably wouldn’t decrease. According to Schek, such members would most probably not subscribe to HBO’s standalone service or even Netflix, which again changes nothing for the latter.

Users may go for both Netflix and HBO

It seems like there will be fewer people who will switch from Netflix, which offers a vast library of originals along with A-list content from other studios. Based on some metrics, Netflix has better content than HBO along with a wide variety of content. This means that those who want HBO’s content would also want Netflix’s content, making both the “services complimentary.” The second reason Schek cites for keeping both services is that both are inexpensive and can easily be afforded by most households.

Users could also prefer Netflix, as the service will probably cost less than HBO. Schek notes that it will be tough for HBO to beat Netflix’s price considering “their Nordics pricing and Cable TV Premium Channel pricing.”

At the end of the day, Schek notes that users requiring only one service “will likely perceive Netflix to be a better value and subscribe to Netflix instead of HBO.”

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