10/21/2014 02:11 pm ET Updated Dec 06, 2017

Is HBO's Decision to Offer Standalone Streaming Good or Bad for Netflix?

Is HBO's decision to offer standalone streaming good or bad for Netflix?: originally appeared on Quora: The best answer to any question. Ask a question, get a great answer. Learn from experts and get insider knowledge. You can follow Quora on Twitter, Facebook, and Google+.


Answer by James Schek, I work on the Netflix Content Delivery Network

Why can't it be both?

It's probably a push to a net win. Few consumers will have a reason to cancel Netflix in favor of HBO, but many will have a reason to subscribe to both.

I think the main question is how many people would subscribe to HBO instead of Netflix? I personally think that number is fairly low compared to the number of subscribers who would subscribe to both HBO and Netflix at the same time.

Let me explain why.

Let's assume for the moment that HBO Standalone will be priced similar to their Nordics offering at ~$15/mo. An average Cable TV subscription in the US costs an average of ~$62/mo without HBO. Let's assume HBO Premium Channel through Cable TV costs the same as HBO Standalone for simplicity (source: HBOWatch).

For anyone who is a current HBO subscriber who switches to Standalone and keeps their Cable TV subscription, they are not any more likely to cancel an existing or less likely to start a Netflix subscription. No change for Netflix.

If they have a Cable TV subscription and cut the cord, they're saving ~$62/mo. Some portion of those people will subscribe to another SVOD service like Netflix, Hulu, or Prime... the question is how many? Regardless of how many, a net win for Netflix.

There are some people who subscribe to a Netflix DVD plan to get HBO content. Some portion of these will cancel their Netflix DVD plan in favor of HBO Standalone; the rest will keep their DVD plan because they watch non-HBO content as well. This is a net-loss for Netflix, but with the caveat that DVD's are already in decline.

There are many people who get HBO through a friend or family member, but do not pay for a subscription themselves. I doubt these people will be any more likely to subscribe to HBO Standalone, nor will it affect their decision to subscribe to Netflix. No change for Netflix.

Now, what about the people who do not subscribe to any HBO service. Some have Netflix, some don't, but that doesn't really matter. Some of them will not care about HBO Standalone and it will not affect their decision to keep Netflix or subscribe to it in the future. Again, no change for Netflix.

So now the big question. How many of these people would subscribe to HBO instead of Netflix given the choice?

I think this number is pretty small. First, Netflix offers a much larger library of content that includes Originals (similar to HBO, but far fewer) as well as A-List content from other studios. By some measures, Netflix has better content than HBO. They also have a wider variety of content. So people who want HBO content will likely want Netflix content. This makes Netflix and HBO complimentary.

Second, both subscriptions are inexpensive enough that most households could afford to pay for both and get sufficient value out of them. The total cost would be $20-$30/mo for both so it doesn't push consumers to choose just one, the way an expensive Cable TV subscription might.

Third, HBO will likely cost more than Netflix. We don't know this for a fact (no pricing info as of Oct 2014), but based on their Nordics pricing and Cable TV Premium Channel pricing, it's unlikely they'll meet or beat Netflix's price. HBO will have be careful not to undercut their premium channel pricing too much as to alienate their Cable TV partners or otherwise cannibalize that revenue.

For consumers who need to pick only one service will likely perceive Netflix to be a better value and subscribe to Netflix instead of HBO.

Net win for Netflix.

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