Mark Cuban: Netflix's streaming success unsustainable

HDNet founder says Hollywood unlikely to allow Netflix to offer films on the cheap when the cable companies are willing to pay billions for the privilege.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
4 min read

Sounds like Netflix CEO Reed Hastings can count Mark Cuban among his fans.

"Netflix has been brilliant at monetizing previously unmonetizable content," Cuban said this week. The founder of high-def cable station HDNet and owner of pro basketball's Dallas Mavericks, Cuban made the statements as part of a blogging debate he's engaged in with Newteevee reporter Janko Roettgers.

Mark Cuban, HDNet founder CBS/60 Minutes

Cuban is skeptical that Netflix or any other Web video service are serious long-term challengers to cable companies. On Monday, Cuban wrote a blog post called "The Future of TV is TV." He was talking about traditional cable TV. Roettgers responded with a defense of Web video services.

Cuban responded again on Tuesday and made an interesting point--one customers of Netflix, the Web's No. 1 video rental service, need to hear--especially those people who did most of the moaning about the company's willingness to suspend rentals of newly released DVDs for a month to help some of the studios, including Warner Bros., protect disc sales.

Cuban credited Hastings and Netflix with successfully creating a market for streaming catalog titles but argued Netflix's ability to offer feature films for as little as $10 a month doesn't appear sustainable. Eventually, according to Cuban's thesis, the cable companies and studios will throw up roadblocks.

"As the balance of revenues change, so could (Netflix's) access," Cuban wrote. "They already had to give up a 28-day window on movies. You don't think that is their last concession, do you?"

A little background: Netflix is best known for delivering DVDs to subscribers via the U.S. Postal Service, but over the past year the company's customers have increasingly embraced digital distribution of films. No more waiting for the mailman. Users of the Watch Instantly service have access to thousands of catalog titles and are streaming them with the help of an assortment of set-top boxes to their television sets via the Web. Netflix doesn't charge extra for the streaming service--at least not yet.

The company reported during its last earnings report that 55 percent of Netflix's customers have watched at least 15 minutes of streaming video. The success of the service appeared to catch cable companies and film studios by surprise. But Cuban says the studios aren't stupid. The cable companies pay billions of dollars for the rights to show movies. Why should Netflix get the same access when it doesn't stick nearly as much cash into the studios pockets?

The cable companies are already making plans to offer subscribers the ability to watch streaming video on Web-connected devices. And according to Cuban, once Netflix is required to pay more for access, it will be forced to pass along the additional expense to customers.

Once that happens, Cuban says Netflix's pricing structure will look a lot less attractive.

"The other thing to note is the percentage of Netflix subscribers who already subscribe to a TV provider," Cuban wrote. "Netflix has to be concerned that it will be easier for (cable subscribers) to give up Netflix if their TV provider expands their VOD offerings and allows for queuing of streams to a TV channel than it will to give up the TV provider."

Can Netflix successfully compete?
Cuban is right. Why would Hollywood risk alienating better-paying customers? As such, Netflix appears headed for the fight of its life. As soon as the public gives up on movie discs and comes to expect digital distribution, Netflix will ask subscribers to pay more for streaming video. The good news is that time is still a long way off.

But what studio chiefs must consider is that their content is worth only as much as someone is willing to pay and there's no doubt that consumers don't value media like they once did. TV, film, and music content have taken a beating in recent years. DVD and CD sales are evaporating and legal purchases of digital downloads aren't making up the losses. Studios are laying people off. Fewer films are being made.

We're still in a bad recession and plenty of consumers want to chop expenses. And then there's the competition. To be sure, there are lots of other things we can do with our time besides watch TV. There are video games to be played, e-mails to be sent, Facebook messages to write, YouTube videos to be wowed by. There are others who spend their time downloading copies of "Lost," "Mad Men," or other shows and films from illegal file-sharing sites.

Netflix, with its low prices and quality customer service, is a natural pirate killer, said BigChampagne CEO Eric Garland.

Garland, one of the founders of the file-sharing tracking service, asks if it wouldn't be better for Hollywood to look out over the TV-viewing landscape and see a bunch of Netflix logos rather than scores of Jolly Rogers.