Transfer Pricing Associates

Video On Demand Wars

post Tuesday February 18, 2014

Tags: amazon, hbo, hollywood, netflix, on demand


The world of movie and television is changing fast. HBO and Netflix are battling against each other to take over this world. So far it looks like HBO is winning this fight, at least for now. Their latest numbers revealed how much money the company makes and it is much more than Netflix; $1.8 billion compared to the $228 million of Netflix. Despite having millions fewer subscribers, HBO still manages to generate more money than its biggest rival. Due to the huge costs of licensing deals with Hollywood studios, the operating income of Netflix was lower than HBO. However, this lead is predicted to be catched up by Netflix and the future is more likely to look like the business model of Netflix than the one of HBO.

HBO’s programming consists primarily of theatrically released motion pictures and original television series. Netflix is a subscription-based movie and television show rental service that offers media to subscribers via Internet streaming. HBO’s business model is profitable enough in the short-term, but Netflix is better prepared for the future. HBO is still holding on to the classic TV schedule, while Netflix makes everything always available for their subscribers. Hollywood, however, is happier to work with HBO than Netflix. They believe that a movie shown on HBO is better advertisement. Before streaming services, HBO was the only company who offered to see new movies without having to go to the video store. Furthermore, subscribers could only watch the movies when it was broadcasted on HBO’s schedule. That is why Hollywood is more eager to cooperate with HBO.

On the contrary, Netflix offers their subscribers limitless access to its catalog. As long as you have a subscription on Netflix, you can watch everything you like. Hollywood is not restricted to only offer their content to HBO and Netflix though, via Amazon Instant Video and iTunes, they also have another option to offer their content on demand without having to merely rely on DVD’s. Due to the low attractiveness of Netflix for Hollywood studios, the streaming company is investing heavily on its own self-produced shows, such as ‘House of Cards’. That way they can be independent from Hollywood and eventually make the movies the secondary attraction and their own shows the primary one.

Because Netflix makes all their content available at once for their subscribers, they are not limited by the number of hours in a week. Unlike HBO, who sticks by the so-called ‘’appointment television’’ model. HBO is changing their policy due to necessity though, with on-demand services which are very similar to the services Netflix provides. Netflix is setting the pace and HBO is following, despite the lower income Netflix has. Right now, their lead has not made them profitable than HBO yet, but their new technologies and new business models have proven that its inventors will win.

With these facts in mind, you can imagine that the biggest rival of Netflix is not HBO. In fact it is another American company called Amazon and its streaming video app. The advantage Amazon has is that they let their subscribers stream the videos they rent or buy through Amazon Instant Video. Hollywood studios like this business model and Netflix cannot compete with this service. And just when you thought that it would stop there… Amazon is also producing their own shows, just like Netflix.

Amazon has not gained enough attention to be a real threat to Netflix yet, but recent history shows us that the Seattle company is always a party to be held into account. The only company who should be afraid of Amazon right now is HBO itself. Even though their profits were higher in 2013 than Amazon, the rise of Amazon in the television world is a force to be reckoned with.  

Source: wired    

Image courtesy of Renjith Krishnan  / 

Looking for more great content? Subscribe to our RSS feed to get articles as soon as they are posted.

Leave your comment


Comments on 'Video On Demand Wars' (0)