Will Netflix bear the brunt of TV's content war?

With mergers increasing cable and satellite's might, television content providers humbled by potential a la carte pricing could squeeze Netflix and other streaming services who need their shows more.

By TheStreet.com Staff Feb 28, 2014 12:19PM
Netflix online DVD & movie rental site © Kevin Britland/AlamyBy Jason Notte, TheStreet

PORTLAND, Ore. (TheStreet) -- If we're headed toward a la carte television, as my colleague Rocco Pendola has suggested on multiple occasions this week, guess who's going to get stuck with the bigger bills? The Street on MSN Money

No, not cable and satellite customers who get to structure their offerings lists as DirecTV, Comcast (CMCSA), Verizon (VZ) and others tell content providers like Fox (FOX), Viacom (VIA), Disney (DIS), AMC and The Weather Channel to take their fee complaints walking. There won't be any more back-and-forth between service and content providers or nasty blackouts mixed with snippy commercials. If television goes a la carte, the viewers are going to set the prices themselves based solely on demand.

Nope, the only way content providers are going to be able to jack up their fees and squeeze more money out of deals for their shows is to target the one company in the room that will still be doling out cash for such things: Netflix (NFLX). The company's recent deal with Comcast for bandwidth and the potential for similar payouts to Verizon and others left Netflix's big, fat wallet sticking out of its back pocket. As most of the content providers already know, Netflix has been robbed by their like before.

This is a company that isn't terribly opposed to making painful compromises for the sake of content. It locked in Disney to an exclusivity deal, sure, but it let exclusive content deals with Epix and Starz slip away to make that happen. It hammered out agreements with Warner Brothers and Sony half a decade ago, but gave away the right to rent or stream anything resembling a new release from either of them.

With the cable and satellite providers in no mood to negotiate soaring fees and Fox, Time Warner (TWC) and Comcast's own NBC Sports building sports ecosystems to rival that of ESPN and its $5.50-a-month flagship station, the content providers are losing any semblance of leverage they once held.

Except where Netflix is concerned. That company is still concerned with locking in exclusive content and warding off advances by Amazon, bumbling network joint venture Hulu Plus and Verizon's still tiny Redbox Instant collection.

While cable and satellite companies can drop the redundant Weather Channel and a whole bunch of niche networks without batting an eyelash, Netflix would be in serious trouble if its viewers suddenly were unable to binge watch the last episodes of Mad Men or couldn't catch up with the all of CBS' How I Met Your Mother before its season finale.

Netflix has built its streaming service around two core strengths: Television series and children's programming. The movies are nice, but rarely are they exclusive to Netflix and seldom do they stick around for a year or more. By contrast, viewers have just as much access to back episodes of Scrubs and Cheers as they had two years ago and have Disney content joining a network already stocked with DreamWorks, Nickelodeon and PBS kiddie offerings.

However, Netflix still produces very little of those products itself: And for every House of Cards orOrange Is The New Black, there's a Lilyhammer or Hemlock Grove that doesn't quite hit the mark. Content providers like Showtime, AMC, Fox and even Comcast's NBC and USA have their hands on the shows that keep folks watching and subscribing. They know Netflix viewers will wait through lengthy negotiations just as long as the new episodes of It's Always Sunny In Philadelphia, Family Guy, Arrow and the last season of Psych keep showing up and completing their collections. They know that those same viewers love having cult classics like Buffy The Vampire Slayer, Battlestar Galactica, Futurama and The X-Files around and that they'd flip out if they ever disappeared from the virtual library.

That knowledge is power, and that power comes with a price. Cable and satellite customers may one day be able to trim the price of their pay television by trimming away a few channels, but Netflix needs the content and still has the wiggle room in its pricing to pay for it. Where once Netflix was beholden to the folks with the fiber-optic cable who could accelerate and slow its speeds at whim, it's now at the mercy of channels, media companies and content providers chastened by their former masters and chasing new sources of revenue.

The niches may disappear from the cable and satellite menus, but Netflix is just one digital stockpile of niches. Just what its content partners will charge for the privilege from here on out remains to be seen. Our advice: Take the over.


More from TheStreet
Feb 28, 2014 2:09PM
The death of Net Neutrality will result in slower speeds/higher prices for consumers. Having a few large multi-national corporations control most of the internet will result in less free speech and expression. Only by having healthy competition and regulation against monopolies will the internet and telecom industry thrive and create. Having 1 or 2 companies control most of an industry (AT&T and Verizon for example) will always be bad for the consumer.
Mar 2, 2014 12:28AM
I sure wish I could pick my channels and pay $30 month instead of an extra $30 for reality and sport's crap.
Feb 28, 2014 9:36PM
I'm cancelling my cable with Comcast tonight.
Mar 3, 2014 8:59AM
My internet/cable tv service went up 23% since January 2014.  It's up 75% since July of 2010.  I'm putting my outside antenna back up for news and dropping cable tv.  I've had enough!
Mar 3, 2014 10:07AM
I love how the author thinks viewers would set the price for al a carte programming. We know what we'll end up with is every good station costing a ridiculous price. When there are ten's of thousands willing to pay $50 or more for a pay per view event like a fight you can imagine what will happen to the best programming. Prices for the most popular stations will be set by those with no concern for cost and the masses will be left with content like the weather channel.
Mar 3, 2014 10:14AM
Why does MSN always have a jones on for Netflix's demise? I think Netflix will do just fine, especially since they are also a content creator as well as a content provider. Have really enjoyed some of their shows: Lilyhammer, Orange is the New Black, House of Cards, Hemlock Grove, etc. If anyone should be worried it should be the networks, who only see fit to foist off garbage on the public. Pretty soon people will wise up and get their content from other providers/creators.
Mar 3, 2014 10:39AM
Attorney General Holder asleep at the switch again. This time allowing comcast etc to create price controlling monopolies. The FCC is becoming a deregulating agency. The consumer has no friend in Wash DC. Also the natural gas companies have once again formed price controlled non competitive monoplies.
Feb 28, 2014 2:04PM
If you are having issues with poor streaming quality or constant buffering users on arstechnica.com have tried and found that using VPNs (virtual private networks) solves the issue. routing your traffic to say New Mexico or Tennessee can result in much better streaming service as there is far less web traffic in those areas.
Mar 3, 2014 10:11AM
Mar 3, 2014 2:07PM
The government should be stepping in regarding the Comcast Time Warner merger there are laws to prevent monopolies that victimize customers. I don't pay the cable bill in my house and nor would I for what they want my mother is terminal and we have it for her, when she passes it will be gone. If Netflix prices jump too high I will ditch them too and I will take my laptop to public places and have my coffee there. I refuse to keep bending over for greedy businesses and banksters and if enough of us did this they would be forced to change their ways. 
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