Linear TV ‘ripe for replacement’, says Netflix

The linear TV channel model is “ripe for replacement” with the evolution to internet TV already happening, according to Netflix in a letter to investors published yesterday.

Outlining its ‘long term view’ on the back of this week’s strong quarterly earnings report, the US video-on-demand service said that it was continuing its original programming efforts and said it was aiming to compete with the likes of HBO – not major platform providers.

“We don’t and can’t compete on breadth with Comcast, Sky, Amazon, Apple, Microsoft, Sony, or Google. For us to be hugely successful we have to be a focused passion brand. Starbucks, not 7-Eleven. Southwest, not United. HBO, not Dish,” Netflix said.

In terms of its content focus for the future, the firm said it was “not a generic ‘video’ company that streams all types of video such as news, user generated, sports, music video, or reality. We are movies and TV shows.”

The firm said it is currently spending about US$350 million per year “on a wide range of efforts to improve our service and app” and is investing more than US$2 billion per year in content licensing and the creation of original shows. For 2013 and “the next few years” it said less than 10% of that would go on its Originals – like the recently launched House of Cards.

“While we are passing HBO in domestic members in 2013, it will be several years before we are peers with them in terms of Original programming, Emmy awards, and international members. It wouldn’t be surprising to us if HBO does their best work and achieves their highest growth over the next decade, spurred on by the Netflix competition and the Internet TV opportunity,” Netflix said.

The firm added that it was increasingly important for it to work with ISPs on network interconnection points – “so the ISP subscribers actually experience the benefits of their highspeed internet.”