“When I go into my living room and turn on the TV, I feel like I have gone backwards in time by 20 to 30 years,” Tim Cook told Brian Williams last December. “It’s an area of intense interest. I can’t say more than that.” While the leader of Apple (NASDAQ:AAPL) is not willing to say much about the future of television, another executive has an 11-page essay on the topic.
Reed Hastings, chief executive of Netflix (NASDAQ:NFLX), recently released his long-term view on the television industry. He believes that Internet TV will replace linear TV across the world over the coming decades, as apps replace channels and remote controls disappear.
Hastings explains, “People love TV content, and we watch over a billion hours a day of linear TV. But people don’t love the linear TV experience where channels present programs at particular times on non-portable screens with complicated remote controls. Consumers click through a grid to choose something to watch. DVRs and VOD add an on-demand layer at the cost of storage and increased complexity. Finding good things to watch isn’t easy or enjoyable. While hugely popular, the linear TV channel model is ripe for replacement.”
Netflix spends a great deal of money expanding its presence and building its own future. The online streaming giant spends over $450 million per year on global markets, and about $350 million on improving its services. More than $2 billion a year is invested in content licensing and the creation of original shows such as House of Cards.
Many TV networks such as HBO, MLB.tv, and Disney’s (NYSE:DIS) ESPN are already moving into the Internet TV industry with popular apps. Although Internet TV is currently a very small percentage of total video viewing, Hastings believes it will grow every year for the following reasons:
- The Internet will get faster, more reliable, and more available;
- Smart TV sales will increase and eventually every TV will have Wifi and apps;
- Smart TV adapters (Roku, AppleTV, etc.) will get less expensive and better;
- Tablet and smartphone viewing will increase;
- Tablets and smartphones will be used as touch interfaces for Internet TV;
- Internet TV apps will rapidly improve through competition and frequent updates;
- Streaming 4k video will happen long before linear TV supports 4k video;
- Internet video advertising will be personalized and relevant;
- TV Everywhere will provide a smooth economic transition for existing networks;
- New entrants like Netflix are innovating rapidly.
TV networks that do not embrace apps and the Internet revolution coming to television will lose viewers and revenue. While Hastings believes there is enough space for many players, Netflix is focused on “simplicity.”
He explains, “We are commercial-free unlimited-viewing subscription TV. We don’t have pay-per-view and we don’t have advertisements…We don’t and can’t compete on breadth with Comcast (NASDAQ:CMCSA), Sky, Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Sony (NYSE:SNE), or Google (NASDAQ:GOOG). For us to be hugely successful we have to be a focused passion brand. Starbucks, not 7-Eleven. Southwest, not United. HBO, not Dish. We are not a generic ‘video’ company that streams all types of video such as news, user-generated, sports, music video, or reality. We are movies and TV shows.”
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