Can Netflix Take on HBO?

In Netflix (NASDAQ:NFLX) Chief Executive Officer Reed Hastings’ mind, no one should have to spend $150 on a monthly cable bill and no one should have to wait to watch a television show’s next episode or next season. That is why he is attempting to “become HBO faster than HBO can become” Netflix. As he told GQ, this will solve what he sees as the primary problem with modern entertainment: that all it delivers is “managed dissatisfaction.”

“The point of managed dissatisfaction is waiting. You’re supposed to wait for your show that comes on Wednesday at 8 p.m., wait for the new season, see all the ads everywhere for the new season, talk to your friends at the office about how excited you are,” he explained to the publication.

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To offer a wide breadth of content, which Hastings hopes will make $150 cable subscriptions and Time Warner’s (NYSE:TWX) HBO unnecessary, Netflix will produce its own content. The company’s chief content executive, Ted Sarandos, aims at making at least five original programs per year, according to The Verge. He currently has $300 million in his budget, which has enabled the streaming-video provider to create its first original programming lineup: House of Cards, Orange Is the New Black, Hemlock Grove, a second season of Lilyhammer, and the fourth season of Arrested Development. House of Cards is set to start airing on February 1, and it cost Netflix $100 million just to hire Fight Club’s David Fincher to direct the series.

This method may be too costly to be sustainable, as GQ said, but it is an important way around Netflix’s content problems and its competition with HBO, the rival most feared by Hastings. “They are becoming more Netflix-like and we are becoming more HBO-like,” he told Gigaom back in December of 2011. The main problem with HBO, according to Hastings, is that the network is the only company other than Netflix with the “stomach” to spend one to two billion dollars a year on content. HBO already produces its own content.

But as the Fiscal Times reported, “Netflix’s library of streaming content simply isn’t as all-encompassing as its DVD rental library once was.” Netflix’s content has been under analysts’ microscope recently, as the company has gained and lost numerous licensing agreements. In September of last year, it lost its exclusive contract with Epix for new movies from Paramount, Lionsgate and MGM. It also lost access to Starz’s (NASDAQ:STRZA) Disney and Sony (NYSE:SNE) movies earlier in 2012, and A+E Networks pulled its content in late September. However, recent deals inked with Time Warner and The Walt Disney Company (NYSE:DIS) should offset the losses slightly. However, Amazon (NASDAQ:AMZN), one of Netflix’s main competitiors, has made its share of content acquisitions as well. Its Prime Instant Video library now holds more than 33,000 titles.

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