What a difference a quarter makes. Not six months ago, nearly anyone who comments on tech for a living was piling on Netflix (myself included). The (admittedly bungled) decision to spin off its DVD rental business and raise prices triggered a wave of derision, and a rush of subscribers to the exits. The company graced many a year-end list of the biggest flops in technology.
But that was then. With its recent financial statement, Netflix is a genius again, adding 610,000 new customers and achieving revenue targets that, while still down, beat Wall Street expectations.
The up and downs obscure a larger truth about how Netflix is situating itself that speaks to the broader development of Internet-delivered video content to the home. As CEO Reed Hastings has said, Netflix sees itself as HBO - a broadcaster of high quality content that just happens to travel into your home via the open Internet. It's a mix of original programming and content that it licenses from studios. Hastings has said explicitly that he sees Netflix as a supplement to, not a replacement for, video services delivered to the home via the Comcasts and DirecTVs of the world.
Hastings' vision goes a long way to explaining why Over the Top (OTT) video isn't ushering in a wave of cord-cutting defectors from pay TV services (thank the economy for that). Those pining for a "virtual cable service" are going to have to wait a considerable while longer - unless Apple figures out how to strong-arm cut-rate retransmission deals it's probably not going to happen anytime soon.
As Netflix's ambitions have been circumscribed, pay TV providers are opening their arms to OTT content.
As IP STB manufacturer Amino's former CEO Andrew Burke explained to me in an interview last year, service providers no longer view it as a threat but as an opportunity. With a new generation of hybrid set top boxes and interfaces that can blend linear TV, OTT and a service providers own video on demand library, pay TV providers realize the value they can offer in providing a quality OTT experience, Burke said.
Perhaps the biggest question facing Netflix is not whether they can scramble the pay TV universe but whether they can top Boardwalk Empire.
