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Big media companies suddenly seem terrified of Netflix – and they should be

Published Oct 31st, 2014 3:25PM EDT
Netflix Vs. Hulu Vs. Amazon

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Over the past year, Netflix has announced a colorful smorgasbord of new original content projects that include comedy, animation, historical epics, science fiction sagas, dramedies, biopics, super hero series, etc. This towering ambition has clearly increased the concerns of media moguls. Now the 21st Century Fox chairman Rupert Murdoch has spelled out bluntly what he thinks: “As an industry, we need a competitor — a serious competitor — to Netflix and Amazon.”

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Murdoch is still reminiscing about MySpace and what could have been — let’s recall that that expensive News Corp. takeover target was planning to launch a video service roughly at the time YouTube took off. Google ended up buying YouTube for just three times more money than what MySpace cost News Corp.

Now all major companies involved in television production and distribution are eyeing Netflix with increasing suspicion. 21st Century Fox together with NBCUniversal and Disney do own Hulu, a rival streaming service. But finding a common strategy is difficult for three companies that are already fiercely competitive with each other.

They may need to band together soon, however: Just this week, Sanford Bernstein issued a research report claiming that video on-demand services are already cutting into ad-supported TV audiences substantially. According to the study, video streaming services are no longer complementary to linear TV and have turned cannibalistic. This is particularly obvious in the summer months, when broadcast television is at its weakest. Nielsen estimates that TV audiences were down 4% year on year in the autumn quarter, while Rentrak thinks the decline could have been as large as 7%.

The big question now is whether those mid-single figure annual audience declines accelerate as Netflix and Amazon’s streaming services become more popular and their supply of original programming spikes.

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.