What Netflix's Epic Quarter Means for the Future of TV

The television business isn't endangered. It's growing. And the result is great news for anybody who loves TV.

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Reuters

Netflix's grand strategy -- Step 1: Buy original content; Step 2: Add subscribers; Step 3: Profit -- is going just as planned.

The company added more than 3 million subscribers (2 million in the U.S.) last quarter, which, at $7.99 per subscription, means revenue nearly equaled the full price of the $100 million "House of Cards" series that debuted early this year.

Did "House of Cards" lure 2 million more people, alone? No. We don't know how many Netflix subscribers watched the series, and we certainly don't know what share of the new subs joined just specifically because of the Kevin Spacey vehicle.

So what did "House of Cards" really buy? Allegiance. Nearly 90 percent of Netflix subscribers said "House of Cards" made them less likely to cancel, according to a survey by Cowen and Co. But here's what "House of Cards" doesn't get Netflix: the right to raise prices. Two-thirds of subscribers said they'd bolt Netflix if they raised the monthly price.

Netflix epic win this month is great news for Netflix shareholders and great news TV lovers everywhere. If you like expensive, high-quality TV, you should root for Netflix and Amazon and Hulu and HBO to go after each other for exclusive rights for content. It means more wholesale demand for great television. It means better incentives for Hollywood's stars to become executive producers and showrunners. It means more great television.

But I'm not yet convinced that Netflix has a clear long-term advantage over its top competitors -- particularly Amazon Prime and cable (+HBO). First, nobody has more good will from public investors than Amazon, where CEO Jeff Bezos has trained the stock market to accept zero profits forever, since the company is viewed as a terrifying quasi-monopoly in e-commerce. This gives him a dangerous license to spend with abandon on TV licensing deals.

Second, even though Netflix is successfully setting itself up as a competitor to HBO, it's still a complement to, not a substitute for, the behemoth of the cable bundle, because it doesn't have the keystone that holds the whole thing together: live sports.

For years, some TV watchers have predicted the demise of the traditional television business. The irony is that, even in a weak economy, what we're seeing today is the proliferation of the traditional television business of paid subscriptions. Multi-channel video subs are holding steady -- and HBO/Showtime subs are growing -- while Netflix screams toward 30 million American subscribers, and Amazon and Hulu Plus continue to grow.

For a country that apparently doesn't want to pay more for television, we're doing a pretty pitiful job at it.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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