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How Will Netflix Compete With Live TV Streaming?

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At one time, Netflix was the undisputed leader in the streaming content space. When it was time to stream a film or TV show, the place you looked was Netflix. But after plenty of competition from the likes of Amazon.com, perhaps the greatest challenge yet awaits Netflix in 2017: the introduction of live TV streaming from rivals such as Hulu. So how will Netflix compete with live TV streaming?

That’s a great question to ask, and one that certainly Netflix CEO Reed Hastings has been asking. Until recently, Netflix could ignore the entry of live streaming TV players like Sling TV. In fact, Hastings has often pointed out that many of Sling TV’s customers end up becoming Netflix customers as well, simply because Sling TV’s archived film options are not nearly as deep or wide as Netflix’s.

But along came Hulu and its plan to offer live TV streaming. Hulu is fundamentally different from the other live streaming TV players for two basic reasons – (1) it’s owned by major media companies Disney, Fox and Time Warner and (2) it already has a much broader and deeper TV show archive than Netflix.

Point (1) is important because it’s conceivable that the biggest media companies in the world might start diverting all their best media content to Hulu, which they own. Why should they offer content to Netflix on the same terms that they offer this content to Hulu?

Point (2) is important because a person who primarily watches TV shows is not the same type of person who watches only movies. Hulu has always been known as the place to go if you want to watch recent TV shows the day after they air. Once Hulu Live launches, it will be even harder for Netflix to woo away TV viewers.

With people already paying for Hulu Live (which will be much more expensive than Hulu Plus), it’s possible that people could decide they just don’t have the wallet to pay for both Hulu Live and Netflix. And that’s especially true if the perceived content gap between Hulu and Netflix narrows considerably.

In response, Netflix has three different strategies that it can pursue to hold back the barbarians at the gate. Here’s a quick look at all three of them.

Netflix Strategy #1: Ramp up the original programming

If the major media companies won’t give Netflix their content, then Netflix will create its own content! In just the past three years, Netflix has significantly ramped up the number of original Netflix series and films that are available exclusively on Netflix.

You can think of this as the “HBO Strategy.” Just as people are willing to pay $10-15 extra per month to get HBO, they’re going to be willing to pay $10-15 per month to get Netflix. Just as HBO has amazing shows that nobody else does – like “Game of Thrones” – Netflix has its own share of amazing shows, like “House of Cards” or “Orange is the New Black.”

Netflix Strategy #2: Reinforce binge-watching behaviors

What’s so great about the binge, you might ask? Well, if you’re binge-watching the latest Netflix series – all 12 episodes – are you really going to have time to watch live TV? One big reason why people began bingeing on quality TV shows in the first place was because “there’s nothing on TV.”

Thus, Netflix has a real reason to encourage the binge. It means people are forming deep and loyal ties to certain shows, and if those shows are on Netflix – it means that they will always keep their Netflix subscription.

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Netflix Strategy #3: Go global

Here’s one place where Hulu can’t touch Netflix. Think about it – when Hulu is streaming 30 channels into your home, all of those channels are for the U.S. marketplace. All of the Hulu Live customers will be in the U.S., too. So while Hulu is busy marketing itself to Bangalore, Maine Netflix can spend time marketing itself to Bangalore, India.

Right now, Netflix has plans to enter 130 markets worldwide. That’s a huge source of future growth. So while Hulu is trying to put Humpty-Dumpty back together again by creating some form of live TV that people are going to pay for, Netflix is out signing up people in Europe and Asia.

So how much does Netflix really fear live TV streaming? Well, CEO Reed Hastings has referred to Hulu Live as “cable getting better.” That’s a backhanded compliment, basically implying Hulu is just making a few cosmetic improvements to the live TV experience – a better user interface, softer pricing and better bundling options.

But what about YouTube?

That observation might be true, or it might just be a way to keep Netflix’s investors from panicking and heading for the exits. And it might just be the case that the real rival to Netflix is not Sling TV or Hulu Live – it’s YouTube TV.

YouTube TV is an entirely new kind of competitor. Number one, it’s backed by Google, which has very deep pockets and a big lobbying presence in Washington. Number two, YouTube is just about one of the most popular destinations on the Internet, so in theory, converting a portion of FREE YouTube users into PAID YouTube TV users shouldn’t be too hard. And number three, YouTube has a lot easier time playing in the “long tail of content” than Netflix does.

Say, for example, both YouTube TV and Netflix want to create content that appeals to horror film fans. Well, Netflix would have to go out and hire some really expensive Hollywood talent, commission a few episodes of the show, wait for it to finish filming, and then release it all at one time. It would then have to hope that the show is so good that it will convince some people to sign up for Netflix.

In contrast, YouTube could just hit up one of the website’s “YouTube creators” to create great new content and promise them a cut of any advertising dollars. YouTube could hedge its bet, by commissioning several shows at once and see which one goes viral. That’s a much more efficient model than the expensive Netflix original content model.

Going forward, then, Netflix has a lot of choices of what to do to fend off the strategic threat from the likes of Sling TV, Hulu Live and YouTube TV. Right now, it looks like Netflix is doubling down on its original content strategy, winning over fans with its binge-worthy content and expanding internationally.

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