That becomes the question. The problem is that their current production slate indicates that they maybe have one -- maybe two -- standout shows to do a year. HBO typically has 4 (right now that would be Game of Thrones, Girls, Boardwalk Empire and True Blood with The Newsroom being an easy slot for #5).

Right now, Netflix's original programming track record is really spotty aside from House of Cards -- which is absolutely HBO quality and would likely have been an HBO show if Netflix hadn't outbid by such an absurd amount (granted it was the right strategy to make but I get why HBO didn't match)).

Aside from Arrested Development, however, nothing on their current slate looks like it will rise above Starz quality. And that's a problem if you expect people to consistently pay $8 a month.

I'm pretty sure people consistently pay $8/mon, despite the original content. You literally need only stay out of my way, be easy to use on multiple devices, and only entertain me 2-4hrs/mon to keep me coming back.

No, by consistently I mean without churn.

See, what happens with Netflix, HBO, Showtime -- even regular cable -- is that subscriber churn happens. It's often cyclical. One of the reasons HBO staggers its release schedule for its programming is to try to get people to pay year-round (it's also why they introduced HBO Go -- in essence they gave up their home video revenue, or greatly limited it -- in exchange for keeping people subscribed year-round because of all the content they could get anytime).

Netflix's own figures show that they can jump and fall by the millions per quarter.

If you want people to continue to subscribe every month -- and not cancel after they see the show they like -- you have to have a constant swath of new and original programming.

Even originally programming won't stop churn entirely.

The originally programming is meant to pull in new subs and keep current subs engaged at higher levels so that they are less likely to churn. If you want to cancel your subscription for whatever reason already, it may not matter if they have 100 original series, you'll still cancel.

It's all about increasing the lifetime value of each subscriber. One way is to keep them longer (e.g. reduce churn). The other is to upsell them to higher pricing tiers. We're not seeing that with the original content (yet), but what if Netflix managed to (for sake of discussion) get the rights to Firefly and made another season of it but only for people who signed up for a new "Premium Streaming" package. You'd see some complaints, but a slew of "Shut up and take my money" memes. I don't know if they'll ever do this, but it's the next logical step once they've established the original content as desirable.

You know what keeps me as a Netflix customer was how easy it was to cancel. A few years back, before online streaming, I just wasn't keeping up with the disks.. so I decided to cancel. No phone queue for an hour, no muss, no fuss, just cancelled online. I seem to remember getting maybe one email a month, not two or more a week... And when they added the online streaming, I came back.

I only use it a couple times a month, I find it hard to actually browse their catalog, but they do an okay job of suggestions. And I can usually find something interesting in a pinch. Most of all, I'm paying to keep them around, because of how good the experience was when I did cancel.

Contrast this to XM, when I had 3 radios, and only wanted to cancel one. Took three phone calls, with hold times of over 40 min each, to be mysteriously disconnected when they couldn't convince me to keep service on a radio in a car I no longer had. After that, I cancelled the whole thing.

I'm sure Netflix has churn; I'm sure they have clients that turn the service on for only a few months of the year; I'm NOT sure that is the majority, which is what I assumed you and I were referencing when quoting "people."

I'd literally pay 3-4x as much for the non-original content. Again, that is only 6-16hrs of content Netflix has to serve up, that is only remotely interesting. The convenience and paying for the business model I believe in does the rest.

If HBO offered its service unencumbered of cable subscriptions, I'd still find it less valuable than Netflix.

I don't even think the 8 bucks a month savings would ever be worth the hassle to subscribe/unsubscribe on any regular basis.

That's a brilliant pricing structure; one I never pay any attention to. They easily could get more out of me a month for the amount of value I get from it (and likely even more than that number if the quality of their unique content continues to shine).

This so very much. I find myself looking at software services, and apps, and saying $10? No way. But I'll buy a coffee or 2 a day without blinking. What's wrong with me/people? Why is stuff that's not physical so worthless?

Hemlock Grove is also excellent. But the point isn't to make money on these shows. Netflix knows that once people sign up, they're unlikely to drop their subscription. At the moment, Netflix is known as a place to get older movies and last season's TV shows. They want to change that perception with some must-watch shows that entice people to sign up. Netflix itself is more than worth $8 per month even without original content, but they need people to sign up before they can see that.

But what's stopping Netflix from replicating this success? To what extent is the success of HBO purely a function of the capital they invest? i.e. what non-financial assets does HBO provide that contribute to the success of its shows? What does HBO bring to the table that Netflix can't?

Two things:

Scale -- HBO is significantly larger when it comes to production capacity. HBO can also have far more shows in production at one time. That scale is partially a product of capital, but also one of point number 2:

Experience -- This one can't be underestimated. HBO first started toying around with original content and series in the early 1990s but it wasn't until Larry Sanders that the show really started to resonate beyond the periphery. Even then, the established TV world didn't start to pay serious attention to HBO until the late 1990s, when you had a swath of hits become bonafide cultural phenomenons (Sex and the City and The Sopranos were hits of a massive global scale beyond anything that cable, let alone premium cable, had seen up to that point).

Netflix has had to start from ground zero. They are essentially right now where HBO was in 1997, when HBO started to shift from acquiring content to paying for original content (Larry Sanders) to making the content in-house (Oz).

Now, granted the current world moves faster -- and Netflix is already potentially approaching the 1997 spot in just two and a half years with this strategy -- BUT content is also now more expensive (The Sopranos and Sex and the City were not $100m shows for a total of 26 episodes like House of Cards is), competition is fiercer than ever and the overall economics of television are not as advantageous as they once were.

I would also say that a third advantage is cable. Yes, cable is an advantage. Why? Because cable often serves as free (or nearly free) advertisements for HBO shows and the bundling of HBO for 3 months free or half-off or whatever is a huge driver in subscribers. Now, Netflix can replicate this, but they'll need to do it at a price and obviously they'll need to assess if giving the cable companies 30% of their monthly revenue is worth the advantages of being bundled.

None of this is insurmountable, but just as starting a movie studio from scratch is hard -- pivoting from a pure distributor into an original content creator/distributor is hard too.

I usually think of the comedy specials as HBO's original content, going back to the 80's even. Given how successful LouisCK has been, it could be an opportunity to take this jewel from HBO in the near term. As shows like last comic standing have shown is that there are a lot of comedians out there that are very entertaining, the production costs can be relatively high quality, and low cost. Building out that area could be really good for Netflix, which already has a lot of older stand up content.

HBO is already a premium brand, Netflix is not. Although nothing is stopping from Netflix from becoming one, getting over that hump is not easy.

Is "a premium brand" a main obstacle preventing new entrants into the content production market? There is another large obstacle: acquiring subscribers to fund the production. Netflix already has a massive subscriber base. HBO needs to convince people to subscribe to their content and to watch their content. Netflix already convinced a massive subscriber base to subscribe to its content. Now all it needs to do is convince them to watch it.

EDIT: I think my post addresses filmgirlcw's point well. Yes, it took 15 years for HBO to cultivate their seal of approval. But that is partially because cultivating a seal of approval required HBO to build its subscription base, which takes time. Netflix already has its subscription base, so it only needs to convince that subscription base to watch its content. It can do that by 1) advertising prominently within Netflix (near zero cost), and 2) producing quality content, so that once people watch the first episode of a Netflix show, they want to watch the second. Therefore, the highest cost to Netflix is that of producing quality content. But as long as they can do that, they will succeed because they already have the audience. Of course, they do need to recognize that they only have a small window of opportunity to show that they can, in fact, produce quality content -- or else they will lose the willingness of their subscriber base to watch their originals.

But Netflix has to retain that audience. As we saw with the price hike, people by the millions will drop their subs and fast. TV is a hits based business -- HBO has to deal with that too, post Sopranos and SATC, it struggled for a few years to find the hits.

I'm also not sure if you understand that HBO has has subscribers in the tens of millions for decades. That's my point, they've cultivated this premium brand but have been a part of many customers lives for years. I'm 30 and I've never NOT had HBO.

My parents have had HBO literally since 1972. 41 years. I realize that's an extreme example but the network has a strong brand.

HBO and Netflix aren't in a zero sum game; both can succeed. It's just that as Netflix moves into HBO's pool, it's going to have to face the issues HBO already faxed, whereas HBO won't have as hard of a time shifting to over the top once the business model makes sense.

Excellent point - I was going to add brand to my above reply but didn't in the interest of time (and because I'd probably attribute brand to experience).

HBO has a quality seal of approval that has taken 15 years to cultivate. That can't be bought or earned overnight from one show. HBO consistently gets more Emmy nominations than every other network -- once Netflix is able to counter in that area, then it will happen.

Still, getting over the hump can happen. Look at AMC. Before Mad Men and The Walking Dead, they were best known for the terrible original series Remember WENN (don't ask, it sucked and I was in 7th grade when it premiered). Now it's easily one of the best networks on TV. Same for FX. Justified, Always Sunny, Sons of Anarchy, Archer, The Americans are all fantastic and this was a brand that was best-known for playing Fox reruns until about 7 years ago.

Here's the thing--I didn't even know, until your comment, what channel Archer was on because I watch it on Netflix. That's what HBO is looking out for.

Right, but the thing is, licensing Archer for Netflix is a fraction of what it costs to actually MAKE the show. That's the challenge.

I sub to Netflix to watch movies; I would like it if there was a wider variety on their streaming offerings but it's slowly and consistently improving. Original programming is gravy - although it's increasingly tasty gravy. HBO's been doing this for ages, whereas this is pretty new territory for Netflix. I think they're doing fine.

Netflix just needs movies, we haven't watched HBO since the 80s'. Their programming was never why we watched anyway. It's all about the movies. If I want original programming, and we do, we watch the education channels, in HD, free OTA.

As a counter point, I honestly see 'movies' somewhat dying out. Shows like Game of Thrones, House of Cards and several others now have the same production quality as movies and aren't hamstrung by the same limitations. e.g. how do you tell a deep story in 2 hours?

For what it's worth I consider the so called 'limitations' of movies their greatest strength. TV shows, given an almost unlimited time budget, have a nasty tendency to ramble unfocused all over the place, telling 20 stories badly as opposed to 1 story well. With a movie you have to pare down and focus on what is really important and have a clear vision of what you're trying to say. To my taste this almost always leads to a much better story.

There're plenty of movies that manage to tell deep stories in 1.5 hours. Netflix is a treasure trove when it comes to quality entertainment.

Depends on what your definition of "deep" is. Have you watched Game of Thrones? The story is very complicated and I can't imagine a 2 hour movie being made out of it without dropping a lot of story on the floor.

You couldn't really make it work in 5 or 6 2-hour movies. There is much more material in ASOIAF than there is in Harry Potter or something similar, and they had to split that into almost 10 full length movies.

Have you tried their original programming recently? At the turn of the century HBO and Showtime started producing really amazing original shows that easily rival any movie and have become the top tier of TV shows. I would venture to say that most people that get HBO nowadays do it for the original programming and not the movies.

These premiere shows had a much different feel than normal "big 3" network TV shows. They tend to be much more serial, with story arcs that go for whole seasons or even longer. They also tend to have much shorter seasons (generally around 8 to 12 episodes). This serial style really lends itself well to in-depth story telling and the shorter seasons means more attention is spent on each episode (since they don't have to constantly churn out new episodes all year).

An interesting technique that many of the shows use is to base themselves off a book series but make the entire 10 to 12 episode season cover a single book. Dexter, Game of Thrones, and True Blood all seems to do this with reasonable success. It allows them to get much more detailed than a 2 hour movie based on a book could possibly be.

If long series are appealing to people that's cool, it's not for us though. We are happy with movies, educational and news.

I think that's it's actually the other way round. Popularity of YouTube and shows like Game of Thrones proves that people are tired of long movies. Attention span has shortened and people want condensed action delivered immediately.

The popularity of Game of Thrones disproves that attention spans have ``shortened and people want condensed action delivered immediately''. It's incredibly complicated, in-depth, and sometimes takes entire seasons for the pay-off to be delivered. Spending the first two episodes (20%!) of the third season laying the table for the remaining eight is pretty much the antithesis of ``condensed action delivered immediately''.

Yeah, House of Cards with Spacey is excellent. I started and liked it so much I finished watching all episodes in 2 days. Its really good to see companies like HBO and Netflix giving the traditional TV media houses a run for their money. BTW, if you liked House of Cards, check out Game of Thrones.

>... if you liked House of Cards, check out Game of Thrones.

Is there anyone on hn who hasn't checked out Game of thrones?

Me. I don't have HBO, and I'm not willing to pirate it.

It's for sale on iTunes, and I believe on physical media as well.

I don't have HBO, but I found a legit version on xbox.

I pay for Netflix from India and for that I've to pay for a broadband service which is INR 2.5K (~$50) which is very costly for India, especially for a single person usage + VPN cost.

Somehow I am not able to make HBOGo work on my Mac with all the tweaking and hence I pirate it(Sad :'( )

I wish they had an app that would just make it work magically - something like PnP!

I don't like the genre (fantasy), and I don't like soaps. "OMG, $x is fucking $y!" isn't my idea of entertainment unless $x and $y are people I know personally.

Well, I wouldn't call it either a fantasy or a soap. It's more about politics than almost anything else. The fantasy parts are much more restrained than I expected when I first started watching (seriously, pretty much nothing fantastical happens from after the first scene of the first episode until the last episode of the first season).

Ok... But have you checked it out?

I watched the first episode and honestly didn't find it interesting.

I didn't like the first episode much either. But it gets much better.

I'm with you. The language didn't seem fitting, and if I remember correctly, it was a bit incestuous.

A bit. Repetitively. The teenage-boy-director style of boob/arse shots a a touch over the top at times too.

>>"OMG, $x is fucking $y!"

IMHO, looks like didn't.

I read one of the books, but I hate the idea of getting sucked into the plot and then waiting years for the final installments. I manged to postpone reading all the Harry Potter books until last year so I think can hold out on GoT too. I don't have HBO so I'll just pick it up on DVD sometime...after I've gotten around to watching The Wire.

The rate at which he's writing the books, expect to be finally cracking the binding on them in 2025 or so...

/me raises hand.

I also haven't read the books.

They just released another Netflix-original series, Hemlock Grove. After watching through it, I'm not that impressed. The reviews I've read also seem to be on the negative side.

Not to discount your opinion, but I do want to mention that I'm also less than impressed by 50% or more of what comes out on cable, to say nothing of broadcast television. It's just the nature of the creative process (and also, let's face it, varying tastes). Launching a few bad shows will not cripple Netflix, as long as they have a number of good ones and get a good return on that investment.

Me too. But my wife really likes it. It is right in her wheel house which makes me think this kind program is definitely geared to a specific audience in mind. I'm sure the production budget reflects that

Yeah, that's the key, I think. Netflix has a huge amount of viewing-habit data at their disposal, and it's tough to imagine that they didn't target their content acquisitions based on detailed information about their viewers. House of Cards was for the HBO/West Wing set, and Hemlock Grove clearly isn't, but they must know that there's a dedicated audience of schlocky TV-horror enthusiasts in their viewership.

House of Cards is absolutely there at the top TV shows, it was simply amazing. Hemlock Grove is… different. Sometimes it really is extremely cheesy, some of the acting and dialogue is weird. But so far it has managed to keep me watching. And it had the best transformation I've seen, movie or tv, so far.

I just watched that transformation scene, so over-the-top creepy that it absolves the rest of the shows sins. So far.

Shudder.

Having watched both, well all three of Netflix's original series. I'd have to say House of Cards was the best, Hemlock was alright, a bit gruesome at times and Lilyhammer was... no comment.

I couldn't watch more than 15 minutes of lilyhammer