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Netflix: a 'frenemy' to the cable TV establishment

Netflix: a 'frenemy' to the cable TV establishment

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Participating on a panel at the 2012 Cable Show with executives from Cox, Time Warner Cable, and Rupert Murdoch's News Corporation probably made Netflix's Chief Content Officer Ted Sarandos feel like a little bit of an outsider After all, it's not a stretch to say his service is one of the biggest ways that people today consume TV and movies — and often cited as a potential threat to the decades-old cable industry that's struggling to innovate.

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Ted Sarandos Netflix
Ted Sarandos Netflix

Ted Sarandos, Netflix's Chief Content Officer, probably felt like a bit of an outsider sitting on a panel with executives from Cox, Time Warner Cable, and Rupert Murdoch's News Corporation at the 2012 Cable Show. After all, it's not a stretch to say his service is one of the biggest ways that people today consume TV and movies — and often cited as a potential threat to the decades-old cable industry that's struggling to innovate.

Unsurprisingly, moderator Piers Morgan (who had just wrapped up his one-on-one with Conan O'Brien) dug right into this disconnect, asking Sarandos whether his service was eating the lunch of the cable companies and networks, or whether Netflix provided a safe harbor for their content. Sarandos acknowledged that his company could be "a little bit of both, depending on the content," and further equivocates, "I don't think there's a black-and-white answer in what role we play." Somewhat reluctantly, Sarandos did admit that "we have billions of hours of viewing, so that's going to take away from something," but noted that he doesn't know what that "something" is — "it could be taking away from other things that people are doing."

"I don't think there's a black-and-white answer in what role we play."

Sarandos' panel-mates largely stayed away from any strong praise or criticism of Netflix, with the exception of Pat Esser, president of Cox Communications. Esser jokingly called Sarandos a "frenemy," saying he was "somewhere between" a friend and an enemy, but he also admitted that "on my broadband platform, he's extremely valuable to me." In March of 2012, Esser said that 40 percent of his broadband customers streamed Netflix, clearly marking the service as an important one to his subscribers. Similarly, Esser said Cox saw some 811,000 streams of HBO Go in March, "so I need to enable all of this to happen if I want to live in this world of access." While it may be somewhat at odds with the cable TV arm of the wireline providers, there's a lot of money to be made in the broadband world — especially with tiered data plans (that have now been endorsed by the FCC) coming our way.

While Netflix may be good for broadband, the company has gotten some press lately for potentially hurting cable networks themselves. The most recent example is children's network Nickelodeon, which has a wide variety of content on Netflix and has seen its ratings dip; the Cartoon Network, on the other hand, isn't on Netflix and has seen its ratings rise recently. While Sarandos didn't issue a firm denial, his response made it pretty clear that he didn't believe Netflix was to blame for Nickelodeon's troubles. He noted that the Netflix programming strategy "is mostly around high engagement, and we get there through personalization. And because of that, people's tastes are so diverse that no specific network or no specific show has such high viewing concentration that you'd see that kind of cause and effect on ratings." Still, he was quick to point out a counter-example that gives Netflix some credibility with the networks, saying that "in the gap between season four and season five [of Mad Men], we brought maybe a million new viewers to AMC for the new season." He believes that Netflix played a role by giving viewers "a good opportunity, and a well-priced model and well-distributed model to catch up on the show."

"We have billions of hours of viewing, so that's going to take away from something."

Sarandos' Mad Men example tied in nicely with the topic of Netflix's foray into producing original content — the service's first original series Lilyhammer debuted back in February, with a second season planned for 2013. Serialized dramas are where Netflix thinks it can make the biggest impact, and also where it thinks it can make the biggest mark against cable networks. Sarandos said that "one-hour serialized drama that are very expensively produced and pretty high-risk for networks" were a place that Netflix could be "a little more directly competitive" with the premium subscription channel space. After all, "HBO, Showtime, Starz, and others have chosen not to license that content to us." We'll certainly see more of Netflix in the content production business (Kevin Spacey and David Fincher's House of Cards should arrive this fall, while Arrested Development's fourth season and Eli Roth's Hemlock Grove are both set to premier in 2013), and Sarandos thinks "our relationships [will] expand" as a result.

Despite the possibility for increased competition with cable networks, Sarandos sounded positive that he could remain more of a "frenemy" and less of an enemy to the industry and continue to help networks add to their viewerships. When he said, "whether or not we took 15 minutes of viewing here and there, I'm not positive," it sounded like coy way of admitting that Netflix is in fact taking viewing away from the cable networks. But in his next breath, he said that "I do think there's an artful way to pick the right content, and the right window, and the right license fee that can be purely additive to cable." It sounds like Netflix is going to continue walking the fine line of working with the cable networks and providers while simultaneously making a play for their customers' eyeballs.