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Report: Netflix Undermining Transactional VOD, Pay TV

19 Jun, 2012 By: Erik Gruenwedel

17% of HBO viewers consider watching Netflix first

Netflix’s all-you-can-watch subscription streaming is rated a superior service and better value than pay-TV channels and transactional video-on-demand rentals, according to a new report from Parks Associates.

Dallas-based Parks found that 16% of U.S. broadband homes consider using an SVOD service such as Netflix (or Hulu Plus) when watching movies on VOD. Another 17% of respondents check out Netflix before watching programming on premium channels such as HBO and Showtime.

The latter statistic is noteworthy considering Time Warner-owned HBO is aggressively seeking to circumvent the rise in SVOD popularity through its acclaimed HBO Go platform, which allows subscribers to access the premium channel's programming in high-definition on myriad consumer electroncis devices any time.

Netflix CEO Reed Hastings, in fiscal calls, has lauded HBO Go for its high-resolution picture quality and consumer-friendly user interface.

“Consumers can pay for a month of Netflix for about the same amount as for two pay-TV VOD movies,” said Brett Sappington, director of research with Parks Associates. “Parks Associates research shows consumers know the quality of the OTT (over-the-top) service is not comparable to pay-TV quality, but the cost-benefit comparison is enough to affect their purchase decisions.”

While Netflix (and SVOD) has long been considered a threat to cable and satellite TV operators, multichannel video program distributors are fighting back through rollouts of proprietary OTT services. Comcast offers an OTT subscription service exclusively to its pay-TV subscribers, and Dish Network offers an online service to its subscribers via Blockbuster (Blockbuster@Home). Verizon and Redbox are partnering to offer an OTT service later this year.

"Netflix is competitive against VOD and premium channels because it has a decisive edge in cost," said John Barrett, director of consumer analytics with Parks Associates. "Its greatest weakness is picture quality, but there are times when the consumer will sacrifice quality for other considerations. Pay-TV providers need to develop alternative services that counter Netflix's advantages in cost and flexibility."

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