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It's sort of crazy that there is an unchallenged assumption at the heart of both this business plan and article: that HBO *needs* to compete with Netflix... because... why? nytimes.com/2018/07/08/business/media/hbo-att-merger.htmlPermalink On twitter.com
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This is the featured inverse of the addiction to scale displayed by startups. A tech startup chases scale at the expense of everything else for a number of reasons, but mostly because their goal is monopoly. Chronotope/813775079066783746On twitter.com
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This means that everyone in the startups' space who is also a startup goes into a binge of fundraising because the only way to bankrupt a competitor over which you have no real advantage is to bottom out your prices for as long as possible.Permalink On twitter.com
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The inverse is established companies entirely changing their approach, like HBO apparently is proposing. It doesn't make sense for HBO to compete w/ Netflix. Netflix is one of the few working scale plays... HBO is the opposite: a highly targeted product to a specific audience.Permalink On twitter.com
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But it is now buffeted by two forces that will eventually destroy it or decimate it: 1: Shareholders/execs who don't understand why 'video service X' isn't paying out like 'video service Y' because they lack subtlety and are greedy....Permalink On twitter.com
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2: The pressure of being in the same marketplace as a monopoly play. Netflix isn't *really* directly competing with HBO, but it is because by making a monopoly play anyone even somewhat in the same ecosystem feels economic pressure from the growing monopoly...Permalink On twitter.com
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Netflix uses its heavy weight approach to drive the expectation of cost down (people want to pay less for more). It can outbid its other streamers for providing the service (both Netflix and HBO make money by streaming post-theater films, but Netflix can pay more, for more)Permalink On twitter.com
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It can outbid competitors for delivery - the oncoming pay-to-play fees in a post net-neutrality world means that Netflix's scale might allow it to outbid or out-pay other streamers for high performance in front of customers.Permalink On twitter.com
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It can hold for cheeper or zeroed production costs - Netflix's scale and popularity means that it can approach less competent content providers, pay less for their work, but potentially luck out and get equal product, or lock down their evolution into future quality.Permalink On twitter.com
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As a result of all this, everyone in the space feels an immense pressure to perform at Netflix's level, but this is a race to destruction - the nature of the monopolistic scale play is that everyone who plays will either lose or the consumer will lose and only one player will winPermalink On twitter.com
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And because investors are currently very tolerant of capital expenditures to chase monopoly: the answer will always be one of three: 1. Whoever has the most money for longest 2. Whoever has the most trust for longest 3. The first mover advantagePermalink On twitter.com
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Good companies build 2. Aggressive companies push for 1. Smart companies luck into 3. People attempting to break into an incipient monopoly can compete when any one point is up in the air. Thus 'disruption'. But Netflix owns all 3. HBO attempting to break that hold will losePermalink On twitter.com
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And the customer will suffer, because HBO at its current scale and business size is really great and satisfying an unmet need. Trying to satisfy a met need will doom them and dilute and destroy their product. That will be really sad, because I like what HBO makes.Permalink On twitter.com
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But end point of an attempt will be driving down their prices in order to underbid for customers over Netflix and part of that is bound to come out of the money they assign to build smart, creative, engaging, TV. And when they stop doing that, it will be very hard to come backPermalink On twitter.com
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(And before you say 'subscription will remain the same', I mean driving down their prices by increasing their costs while not increasing their revenue)Permalink On twitter.com
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This is how big tech companies eventually screw customers & destroy quality in a marketplace. Almost all of them, not just Netflix. The only solution is to have a government that handles monopoly aggressively and dissuade companies from that approach. Which is unlikely right now.Permalink On twitter.com
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