50K Insights | The Rise of Contemporary Entertainment Against Conventional Viewing— Netflix and HBO
Over The Top — or OTT — is a form of entertainment that spoils the user for choice, providing an array of content for the user to choose from, to watch any time, any place, as long as there’s an internet connection. By its Wikipedia definition, it refers to content providers that distribute streaming media as a standalone product directly to viewers over the Internet, bypassing telecommunications, multichannel television, and broadcast television platforms that traditionally act as a controller or distributor of such content.
It puts the user at the top of the priority chain, and the overflow of content is keeping them in mind. This is a marked shift from regular television viewing, which aired programmes or films according to a schedule, and where Home Box Office first made its mark.
Launched in 1972 as a television service by Charles Dolan, HBO completed 46 years of being operational on 8 November this year. Ruling supreme on television for a huge chunk of these 46 years, it emphasised on uncut and commercial-free movies, and then on original productions, which continue to be its trademark even today. It started producing original content in the 90s and continued to expand well into the 2000s — most noticeably with The Sopranos (1999–2007), The Wire (2002–2008) and very recently, Game of Thrones (2011 — ). The steep audience interest in these shows paved the way for more original series by other channels, like ABC, AMC etc. It was a premier medium, something cable subscribers paid extra for and which signified exclusive content. It was a leader in the content space by a far margin for a long time and almost uncontested. Until it was disrupted, when a small company snowballed into the giant known as Netflix.
It might be difficult to believe that Netflix has been around for as long as since 1997, a time when HBO was still ruling our television viewing experience. Starting as a DVD rental service, it soon moved to the internet in ’98, where it practiced a pay-per-rental model. Although DVD rental services were a pretty big business in the 90s with several small outlets all over a city, what worked for Netflix was that instead of attracting customers to a shop to rent the DVDs, they delivered them by mail to their home. This was a small shift in the business operations as opposed to traditional rentals, but is what eventually led to burgeoning business. It solved the basic problem of the customer having to step out of their home at all.
However, the cost of acquisition of new DVDs was still struggling to break even with the pricing model they had for the customer subscription. It was at that time, in 2000, that it offered itself for acquisition to Blockbuster, the colossal American company which provided movies and video games rentals, the giant fish in the same pond as Netflix. And while the 9/11 and the dot-com bubble burst were severely impacting Netflix’s business, forcing it to lay off one-third of its employees, HBO at that time, ruling the television and entertainment services industry for the regular audience, was too big for the national crises to create a large enough dent. New content was produced, audience was hooked, they were nearly undisputed.
In 2002 Netflix initiated an IPO where it brought in nearly $83 million, and the next year they hit 1 million subscribers. 2003 was also when Netflix hit profit for the first time after sustaining significant losses for numerous years initially. HBO by that time had launched several sister channels, like on-demand video streaming, language — specific media etc. Netflix had been toying with the idea of offering movies online, but it was only in 2007 after having delivered its billionth DVD, that it announced on-demand video streaming on the internet and started moving away from its initial business model of rentals. Coincidentally as DVD sales fell immensely between 2006–11, those were the crucial years for the new beginnings of Netflix and could be quoted directly to its extremely well-timed decision to shift the business.
In 2010, HBO smelled up the rise of online streaming and launched HBO Go, a limited hours video streaming service, to the public. At that time it had a total of 38 million cable subscribers, including for Cinemax, its sister service for movies. The Go subscription was an extension for those cable subscribers and worked as television on the internet.
2010 was also the year when Netflix went international, with Canada being its first stop. Over the next two years it continued to expand internationally at a gigantic rate, noticeably all through Central and South America, and Europe. By 2012 Netflix had covered major markets for its service offerings.
While HBO was still ruling television, the shift to the internet was imminent and it was finally in 2015 that HBO went for the big fish — when it launched the OTT subscription service HBO Now.
HBO Now was the subscription based video-on-demand service that gave the user access to all of HBO’s original content, acquired films, and anything that came under their banner. It was the big strike from HBO which had been partly affected by the immense popularity of Game of Thrones with the younger generations — the ones who did not bother with cable and only knew their way around the internet. Now put HBO on the map in direct competition with Netflix, both of whom had flagship original content driving the show for them at that point.
Netflix’s tremendous success with its first original show, House of Cards in 2013, also encouraged it to venture further into more than just acquisition of indie films and their distribution. It picked up cancelled series from other channels, launched new ones, and struck several deals with other production and creative houses. It soon became associated with critically acclaimed content which usually found it difficult to get a release platform otherwise, and exponentially increased the original programs it offered — both films and series — redefining OTT in a literal sense for the subscribers.
The subscriber count and revenue, however, was still unbalanced; before HBO Now was launched in 2015, the subscriptions to its Go and cable services were immense in number (combined with all its sister channels) but Netflix was catching up in a steep climb when it came to the actual revenues earned.
By Q2 of 2014 (a full year before HBO Now was launched), Netflix had matched, and eventually surpassed HBO’s subscription revenues, even though HBO had a higher number of subscribers. There were several other streaming services for the average American audience, but owing to the tremendous international footprint of these two in particular, the play had been heating up between them. In 2016 Netflix launched operations in India, with an India office and several deals with local filmmakers, production houses and content creators.
HBO was specialising in high quality original content — frequently getting nominated for and picking up Emmys, receiving critical and audience acclaim. At a time when Netflix was spoiling the viewers for choice and focusing on content from outside America as well, HBO was focussed on perfecting the few shows they owned.
At the 2018 Television Critics Association summer press tour, Netflix’s VP of original content, Cindy Holland, had said that “quality and quantity are not mutually exclusive” — but the reviews for Netflix’s shows don’t always translate that into reality. It might be fair to say Netflix is more inclusive, catering to a regional audience with algorithm personalising each viewer’s experience in separate countries.
The large number of shows on Netflix meant a lot of their content could be below average, but it also ensured that some top-notch shows were produced in the plethora of original programming; it steadily caught up to HBO in terms of Emmy nominations, and in 2018, it finally surpassed the giant and broke their 17-year streak at the top.
Despite the large number of Emmy nominations and toppling erstwhile leaders HBO earlier this year, audience opinion about Netflix’s shows remains less flowery than its revenue collections, when compared to HBO. Taken cumulative of all their shows, HBO still boasted the highest ratings when it came to their shows (averaging a 75% approval, and retaining its top spot from 2016 where it was tied with FX) while Netflix was far behind at the seventh spot, with a 70% approval.
Despite not being the audience favourite, Netflix hasn’t really slowed down the growth in its subscription, which again, is because of its extremely diverse content. The graph below shows its rapid rise in subscriber count for Netflix, especially internationally from 2012–2018.
As of Q3 of 2018, Netflix had 137.1 million subscribers worldwide, a staggering number for a company that only truly gained international recognition barely 6–7 years ago.
HBO Now on the other hand had a little over 5 million subscribers by Q1 of 2018, a number which seems paltry in front of what Netflix boasts of. But HBO’s majority share still lies in its cable operations — with them hitting the 134 million mark 2 years ago itself. On an overall scale, HBO is still towering, with its several sister channels and offline media contributing majorly to its subscriber base.
A lot of this disparity has to do with OTT as a concept and its usage outside America. For a user in India, Netflix allows them to not only watch content from USA, but also lesser known works from their own country (Netflix has picked up some unique movies and shows in regional languages) and flagship shows from other places, which would have been mostly inaccessible to them otherwise. It is continuously working towards perfecting its user experience, which is clear by the extremely easy-to-use interface and various ways through which it ensures the user never feels like leaving the site — Suggestions, Trending, New Releases etc. Such is Netflix’s disruption that the name is a common verb now — last seen with the likes of Google, Facebook and Instagram, all of whom were operating uncontested in their time.
HBO on the other hand still hasn’t fully dipped itself into OTT as much as Netflix. The attention is clearly on getting high quality content (albeit from the States mostly) and acquiring new films which are lapped up right after their releases (again, largely Hollywood). The argument can be vaguely stated to be an example of quantity vs quality. And with more players coming in every couple of years and a multitude of cable channels launching online streaming platforms, the viewership is taking an interesting turn. For India, Amazon Prime is fast catching up, having capitalised big time on the country’s sudden boom in stand-up comedy with several stand-up specials and a dedicated reality show.
The conventional means of entertainment — HBO — have a huge audience many of whom do not subscribe to HBO Now separately (eg. those with HBO on cable can get direct access to HBO Go, which is not OTT but then OTT’s audience isn’t beyond people of a certain age group, outside of which is where HBO scores big as the ‘simpler channel’), and the contemporary Netflix is quite clearly ahead in the race online (even Amazon Prime with a similar model has only managed to reach 100 million subscribers).
HBO, despite being a cable channel primarily, has stuck to its tagline well — It’s not TV, it’s HBO — where it has moved beyond the concepts of conventional programming and cable shows. Netflix has taken charge of OTT and on-demand video streaming like no other company, constantly ensuring their audience finds exciting content.
While the shift from cable television to internet had been imminent for the newer generations of viewers, the competition now lies unmistakably in the numbers, and the various ways a service can achieve that.
(Read more about the rise of Netflix here)
