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Netflix is reeling from its $1 price hike – and that’s incredible news for American consumers

Published Oct 17th, 2014 11:50AM EDT
Netflix Vs. HBO Video Streaming

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Predicting the behavior of consumers is notoriously tough, but nowhere is it harder than in the rapidly evolving video streaming market. Pretty much nobody expected Netflix’s streaming service to bloom into the huge mainstream success it currently is. A few years ago, many viewed Netflix’s streaming operation as fatally hamstrung by the narrow and often low-quality movie selection. And this autumn, almost nobody predicted just how much a $1 summer price hike would dent the company’s momentum.

RELATED: HBO will fulfill cord cutters’ dreams and launch a standalone streaming service next year

In Thursday trading, Netflix’s share price plunged by nearly 20% as investors reeled from the slowdown of its U.S. subscriber base growth. The company added 980,000 new U.S. subscribers, far below the expected 1.33 million. The sheer scale of this shortfall indicates the company had no idea how to predict the impact of the price hike, which seemed trivially small at the time it was implemented.

The timing could literally not be more delicious for HBO to announce its own standalone subscription service — and of course, that is exactly what happened, literally hours before Netflix whiffed on its subscriber growth numbers. The TV industry has been waiting for quite some time for HBO to start copycatting the Netflix model and that will finally happen in 2015. The vast catalogue of HBO shows will instantly make it a formidable competitor to Netflix.

Perhaps the most fascinating feature of HBO breaking away from the cable TV box is the likelihood that this will lead to a substantial boost in the production of original content. Until now, HBO has limited its series and movie orders to suit a rather compact, meticulously curated selection of gems. But as a streaming video service competing head to head with the massive new original content slate of Netflix, HBO will have to ramp up production rapidly. Netflix has recently announced a giddy array of comedy shows, historical epics, animated series, super-hero miniseries, science fiction extravaganzas and off-beat dramedies.

If HBO opts to match the vast content ambitions of Netflix, America’s TV audience could be facing a renaissance of creative, daring, ambitious television fare. This is particularly interesting right now, when broadcast TV seems to be badly stuck in the rut. Despite the audience losses of leading channels, the autumn TV season has been a astonishingly old-fashioned, as shows like “Forever”, “Selfie”, “Bad Judge”, “The Mysteries of Laura” and “NCIS: New Orleans” would all have seemed as formulaic in 1998 as they are in 2014. This presents a huge opening for both Netflix and HBO as they formulate their original programming strategies.

Netflix is suddenly under the gun, forced to discover new ways of boosting growth. HBO may sense an opportunity in Netflix’s subscriber growth slowdown. With some luck, the resulting duel will lead to a new golden age of American television.

After launching mobile game company SpringToys tragically early in 2000, Tero Kuittinen spent eight years doing equity research at firms including Alliance Capital and Opstock. He is currently an analyst and VP of North American sales at mobile diagnostics and expense management Alekstra, and has contributed to, Forbes and Business 2.0 Magazine in addition to BGR.