Friday, August 20, 2010
Netflix Chief Executive Officer Reed Hastings. Photographer: Ryan Anson/Bloomberg
Netflix Inc.’s drive to offer its subscribers online movies from all the biggest Hollywood studios may hit a wall with HBO.
Time Warner Inc.’s pay-television channel, home to shows including the “The Sopranos” and “True Blood,” holds cable and Internet rights to films from Warner Bros., Twentieth Century Fox and Universal Pictures and is unlikely to make a deal with Netflix, HBO Co-President Eric Kessler said.
“There is value in exclusivity,” Kessler said in an interview. Consumers “are willing to pay a premium for high quality, exclusive content,” he said.
Netflix Chief Executive Officer Reed Hastings opened his company’s coffers last week, agreeing to pay the Epix cable channel more than $900 million over five years for online rights to films from Paramount Pictures, Lions Gate Entertainment Corp. and Metro-Goldwyn-Mayer Inc. Hastings plans to spend more to build the service, which offers DVDs by mail and online viewing for $8.99 a month, and has said he wants HBO as a supplier.
HBO’s stand prevents Los Gatos, California-based Netflix from gaining online access to titles from all of the major studios. Netflix members can see films from Walt Disney Co. and Sony Pictures Entertainment online through a deal between the subscription movie service and Liberty Media Corp.’s Starz channel, which has separate accords with both studios.
Netflix also has an agreement with Ryan Kavanaugh’s Relativity Media, which took over Overture Films from Liberty.
“We would love to do a deal as well with HBO,” said Steve Swasey, a spokesman for Netflix. “Compete with us or collaborate with us, but we would much rather work with them.”
HBO intends to stick with its own plan to make shows and movies available online through HBO Go, Kessler said. The cable channel, which has more than 29 million subscribers, generated operating profit of $1.2 billion on $3.9 billion in revenue last year, according to a presentation by Time Warner on May 27. The sister channel Cinemax has about 12 million.
The combination of a DVD mail-order and online service makes Netflix both a customer and “potential competitor,” Jeff Bewkes, CEO of New York-based Time Warner, said on an Aug. 4 conference call with analysts before the Netflix-Epix deal. “Although so far it’s been more of a complementary service to HBO than a competitor.”
In six months, HBO Go will be available to the channel’s paying subscribers at no additional cost through all major cable systems, on Apple Inc.’s iPad, on mobile devices and elsewhere, Kessler said.
HBO Go, which provides 800 hours a month of the channel’s movies and TV shows, has agreements to offer online programming to customers who get pay-TV service through Comcast Corp. and Verizon Communication Inc.’s FiOS.
The Epix agreement announced on Aug. 10 gives Netflix subscribers films from the channel’s owners, Viacom Inc.’s Paramount, Lions Gate and MGM, 90 days after their cable debut. Netflix also licenses past-season TV shows from CBS Corp.’s Showtime pay channel, according to Swasey. Of the 15 million Netflix subscribers, 61 percent used the online viewing service in the latest quarter.
Netflix fell $4.25, or 3.1 percent, to $132.97 at 4 p.m. New York time in Nasdaq Stock Market trading, after hitting an all-time closing high yesterday. The stock has more than doubled this year. Time Warner rose 27 cents to $30.97 on the New York Stock Exchange and has gained 6.3 percent this year.
By building a market for online delivery of older movies, Netflix “is clearly taking aim at HBO,” according to Richard Greenfield, a media analyst with BTIG Research in New York. “Netflix has proven that there is a market for a deep catalog of older movies.”
HBO has stepped up its spending on original programming, Kessler said. “Boardwalk Empire,” a Prohibition-era crime drama written by “Sopranos” writer Terence Winter, begins in September. Series producer Martin Scorsese directed the pilot.
In San Francisco, one of Netflix’s strongest markets, HBO’s cable-market penetration has grown to 29 percent from 24 percent over the past four years, according to HBO research.
“These are entertainment enthusiasts,” Kessler said.
Verizon unveiled a series of new video applications today, including an upcoming iPad app that will allow FiOS subscribers to watch the same linear programming that is available on their TV screens on their tablet devices. The new app is expected to be rolled out early next year and Verizon expects to have all of its content partners on board by the time the app launches.
There will be certain limitations at the launch of the app. At first, subscribers with an iPad will only be able to watch linear programming within their own home, which allows Verizon to authenticate and make certain that the users have access to whatever content they’ve paid for. Verizon CIO Shaygan Kheradpir said in a press briefing that the iPad app takes advantage of Verizon’s architecture, which he characterized as “cloud TV.” The experience is similar to what’s available today on FiOS set-top boxes, and takes advantage of the same software that Verizon uses for its set-tops. As such, Verizon says it should already have rights to stream the content, as it’s just another screen in the home.
According to Kheradpir, the tech work for making streams available to users on the iPad is already done, and the company is now in discussions with content partners to ensure that they’re comfortable with subscribers having the ability to watch their channels on another device that’s not the TV. In a demo, Kheradpir showed off live CNN video being delivered to the iPad. CNN and Turner Broadcasting parent Time Warner has been at the forefront of TV Everywhere-type services, and is one of the content partners that have been helping to develop the app. Verizon said that it will make the app available when all its content partners are on board.
The new app comes as other pay TV providers are innovating on the iPad and other mobile devices. Comcast, Cablevision and Time Warner Cable have shown off their own iPad app prototypes over recent months, but those apps are, for the most part, focused on remote control of the programming guide and DVR.
In addition to the iPad app, Verizon showed off a new video-on-demand experience that will allow subscribers to purchase and rent videos and watch them across multiple devices and multiple platforms. Under the new VOD platform, videos can be purchased through their set-top box or through Verizon.com and then be downloaded and watched on up to five different PCs and mobile devices.
The new VOD application, which will become available in the fourth quarter, will launch with support on Droid X, Droid 2, Windows Mobile 6.5 devices and the BlackBerry Storm. While not ready at launch, Verizon also plans to make the same functionality available on the iPhone and other mobile devices.
Since rights to purchases and videos are stored in the cloud, users will be able to purchase a piece of content and download to multiple devices. If they’ve bought a video, they can download it, watch it and even delete it from whatever device they viewed it on, and will be able to access it at any time again in the future. If they’ve rented a video, they can watch it on any approved devices as many times as they want within the viewing window.
In addition to the ability to purchase media and stream it to multiple devices, Verizon showed off a new version of its media manager service that will allow users to store their media in the cloud. Users will get 70 GB of storage to start, which can scale up as users adopt the application, and once their videos, music or pictures are stored in the cloud, they can be accessed through the home TV, PCs and even mobile devices.
Related content on GigaOM Pro: The Case For Removable Media on the iPad (subscription required)
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