Time Warner Doesn't Like Flying Cows

If Netflix (NAS: NFLX) has an official nemesis, I'm pretty sure it's Time Warner (NYS: TWX) CEO Jeff Bewkes.

You may recall Bewkes likening Netflix to the Albanian army and to a chimp with a chip on its shoulder. He also keeps telling investors that a content deal between Netflix and his own HBO property doesn't make any sense: that would be like CBS (NYS: CBS) licensing shows to rival NBC, or Showtime getting media licenses from Time Warner.

And Bewkes has not mellowed with age. In a recent sit-down with Financial Times, the CEO came up with some fresh analogies for the networked subscription service.

"It can do certain things and not other things," he said. "It can fly, it's not a submarine. Don't turn a hamburger into a cow."

More to the point, Bewkes says that Netflix and other streaming services simply don't have the financial muscle to get high-quality content. "They get $8 a month. The entire cable dial gets $100."

What may not be obvious on a first reading is that Bewkes is treating Netflix like a replacement for the entire cable industry here. The economics really don't make sense if that's what Netflix is going for today: The company may have as many subscribers as Comcast (NAS: CMCSA) , but can't match up to the combined forces of Comcast, Time Warner Cable (NYS: TWC) , Verizon (NYS: VZ) FiOS, DIRECTV, and all the other cable and satellite broadcasters. And those other guys do collect a lot more money per subscriber.

But does the argument hold water if you see Netflix as a complement to cable services rather than a direct competitor? Wholesale cord-cutters are few and far between, after all, and Netflix CEO Reed Hastings takes every opportunity to say that the cable guys are his partners, not rivals. DIRECTV versus Comcast is "classic either-or competition," but Netflix is just this catalog of extra content that can be tacked onto any broadcast service at all.

"At this point, Netflix now offers prior season television content from all FIVE U.S. broadcast networks and 95% of the U.S. cable networks," Hastings said in the latest quarterly report. Notice how he just reduced HBO from the largest content creator on cable to just one little data point, easily glossed over. The trading of barbs goes both ways.

Will these guys ever sit down to sign an armistice? Probably not as long as Bewkes runs the show at Time Warner. Adding HBO shows like The Sopranos and Game of Thrones would be the Netflix equivalent of Sirius XM signing that fateful Howard Stern deal, but Hastings will simply have to muddle through without it.

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At the time thisarticle was published Fool contributor Anders Bylund owns shares of Netflix but holds no other position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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