Netflix CEO says future of TV is in apps

April 26, 2013

After Netflix’s blockbuster earnings sent its stock soaring this week, the company’s chief executive made a bold prediction: TV as we know it is coming to an end.

Billions of people around the world will abandon remote controls and begin tapping video apps across an array of devices, Netflix chief executive Reed Hastings said. They will choose what to watch like they order food off an a-la-carte menu rather than be force-fed hundreds of channels. Instead of CBS, NBC and ABC, a new set of names will dominate, he said.

“As Internet TV grows from millions to billions, Netflix, HBO, and ESPN are leading the way,” Hastings wrote in a manifesto on Netflix’s future. “Internet TV will replace linear TV.”

Such ideas have been around since the introduction of high-quality video over the Internet. But earnings results from several technology giants this week showed that that vision is closer to becoming reality.

The number of consumers turning to Netflix and other online entertainment providers has taken even Wall Street by surprise. Netflix has 30 million U.S. subscribers, a bit more than HBO and about 9 million more than the nation’s biggest cable company, Comcast. Hastings audaciously projected Netflix’s audience to grow to as many as 90 million as it expands globally. Its revenue, which exceeded $1 billion for the first three months of 2013, was a record. Minutes after the figures were announced Monday, Netflix stock soared more than 23 percent.

In addition, Netflix and Amazon both touted their efforts this week to create original shows. Netflix’s “House of Cards” was hailed as a success by the company, helping draw more subscribers into its fold. This month, Amazon launched 14 original comedy and children’s shows — and it is allowing viewers to vote on which ones should be turned into full-blown series.

The fact that Silicon Valley is finding success with Hollywood-like ventures bodes ill for the traditional television model. While it is unlikely that cable TV will disappear altogether, Hastings conceded, the growth of Internet TV, accessible through apps on big and small screens alike, is putting a once-powerful television industry on its heels.

Some broadcasters have begun scrambling to catch up to online viewing habits.

This week, CBS announced an investment in online TV provider Syncbank, which can stream live shows on the Internet. Others, such as Fox and Univision, said they are considering pulling all of their shows off public airwaves, making the content accessible only through pay models. And a host of the major broadcasters last week renewed a legal fight against Aereo, which streams local broadcasts over the Internet for a small subscription fee.

For all of these efforts, the networks still have a way to go to make a name for themselves in Internet TV, analysts say.

Streaming Netflix videos take up one-third of all U.S. Internet bandwidth during peak traffic hours, and its average subscriber streams 87 minutes of video a day, according to BTIG Research. That makes the online service a major competitor of regular TV, analysts say.

More from other tech giants is on its way.

Amazon is expected to create a television streaming device, and perhaps a mobile phone, that would prominently display its online video service. Apple has been rumored to be working on a television that may bring an a-la-carte model to consumers. Both firms are expanding their array of devices that encourage people to buy individual shows and movies from their stores.

Although Apple and Amazon delivered mixed earnings reports this week, both companies said demand for a-la-carte content over the Web is soaring. Apple said sales of media on iTunes hit a record in the first quarter.

“Cord-cutting is going to happen. The fact that it hasn’t yet is simply because cable companies have been effective at maintaining bundles,” said Carl Howe, director of consumer research at the Yankee Group in Boston. “What these disrupters — Netflix, Hulu and Amazon — are doing is opening up more distribution possibilities for programmers, and that changes everything.”

For now, consumers are glued to live broadcast and cable TV, watching 41 / 2 hours daily, according to Nielsen research. That figure has barely budged in years, but Netflix may soon steal more of that viewing time, analysts say.

“As time spent with Netflix continues to grow, we suspect live and DVR’d TV viewing will fall,” said Richard Greenfield of BTIG Research. Netflix, HBO and ESPN, he added, are beginning to become more important brands than the major networks.

Indeed, the competitors Hastings worries about aren’t broadcasters with three letters in their name.

“The only thing that’s noticeably changed in the last 12 months is Hulu and Amazon bidding more aggressively,” Hastings told investors this week.

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Cecilia Kang is a national technology reporter, writing about tech and Internet policies at the Federal Communications Commission and Federal Trade Commission and how regulations affect businesses and consumers.
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