Reed Hastings Can't Be Serious

If Netflix (NAS: NFLX) CEO Reed Hastings has his way, in a few years your cable or satellite television provider will be offering you Netflix as a premium streaming channel.

Hastings continues to talk up Time Warner's (NYS: TWX) HBO as his company's biggest competitor, proposing that one day Netflix can be a premium add-on service alongside HBO and Showtime.

"It's in the natural direction for us in the long term," Hastings said at the Morgan Stanley Technology, Media and Telecom Conference earlier this week -- as retold by "Many (cable service providers) would like to have a competitor to HBO, and they would bid us off of HBO."

I see what Hastings is doing. He's clever. He wants cable companies to see Netflix as an ally instead of a competitive threat. After all, if Hastings is trying to acquire licensing rights to movies and television shows, he can't upset the cable industry that for now effectively monetizes the productions.

Netflix never referred to folks ditching their cable companies as "cord-cutters." When the pay-TV industry suffered its first sequential drop in paying customers -- ever -- two years ago, Hastings was unwilling to take credit for the couch potato defections.

However, is HBO really a bigger rival than the three companies that are more in its face?

  • (NAS: AMZN) has its digital smorgasbord that undercuts Netflix on price (and, admittedly, selection).
  • Dish Network's (NAS: DISH) Blockbuster is the only company that matches Netflix's ability to deliver both DVDs by mail and through digital distribution, though its unlimited streaming service is currently limited to Dish satellite customers.
  • Coinstar's (NAS: CSTR) Redbox is clearly the beneficiary of Netflix's neglect on the DVD front. Redbox's DVD revenue soared during the same holiday quarter in which Netflix shed millions of DVD plan accounts. Later this year it will finally introduce a streaming service.

Now it's true that HBO and Netflix are starting to resemble one another. Netflix dived headfirst into original programming with Lilyhammer last month. HBO Go -- the streaming service that HBO makes available to subscribers at no additional cost -- will hit Xbox consoles next month.

However, Netflix is already considerably cheaper than HBO -- and that's before we consider the pricey cable bills that are required before its actual cost. If it ever were to position itself as an add-on option to get the broadcasters on its side, Netflix would have to be at a price point that would be lower than stand-alone subscriptions, and a chunk of that would go to the cable, satellite, and broadband television companies.

It doesn't make sense, even if it sounds like the right thing to say.

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At the time this article was published Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Motley Fool owns shares of Fool newsletter serviceshave recommended buying shares of Coinstar, Netflix, and Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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