TV is helping Netflix kill them

Netflix wants to replace TV, and there’s a growing consensus that Reed Hastings has already started: The new conventional wisdom is that Netflix is the reason behind a mysterious decline in TV ratings that showed up last summer and has stuck around ever since.

Here’s the latest argument in support of that theory: Netflix, which streamed 10 billion hours of video last quarter, now represents close to 6 percent of total TV viewing in the U.S., says analyst Michael Nathanson. More to the point: Nathanson figures that Netflix accounts for 43 percent of the ratings decline the networks experienced last quarter.

The MoffettNathanson analyst figures that trend will continue, and “Netflix as a percentage of traditional TV will steadily rise to the low-double-digit range over the next four years, representing the majority of the declines in traditional TV viewing.”

What makes this more painful for TV networks and the Hollywood studios they work with is that they’ve helped Netflix eat into their own business by selling them their repeats — a very high-margin business they were happy to have.

Now there are drumbeats that the studios will cut back on those sales, but during Netflix’s Q1 earnings call, the company said it hadn’t seen any sign of that yet. Then again, that’s one of the reasons Hastings has been accelerating his investments in original content — he doesn’t want to depend on the TV guys’ leftovers.

So to sum up: Netflix uses TV’s old shows to build its own business, which eats into TV’s business. Then Netflix uses the money it makes from TV’s old shows to make new shows of its own — so it can eat into the TV business some more.

Virtuous cycle for Netflix. Vicious one for the TV guys.

[via cordkillers 68]