But what's stopping Netflix from replicating this success? To what extent is the success of HBO purely a function of the capital they invest? i.e. what non-financial assets does HBO provide that contribute to the success of its shows? What does HBO bring to the table that Netflix can't?
Scale -- HBO is significantly larger when it comes to production capacity. HBO can also have far more shows in production at one time. That scale is partially a product of capital, but also one of point number 2:
Experience -- This one can't be underestimated. HBO first started toying around with original content and series in the early 1990s but it wasn't until Larry Sanders that the show really started to resonate beyond the periphery. Even then, the established TV world didn't start to pay serious attention to HBO until the late 1990s, when you had a swath of hits become bonafide cultural phenomenons (Sex and the City and The Sopranos were hits of a massive global scale beyond anything that cable, let alone premium cable, had seen up to that point).
Netflix has had to start from ground zero. They are essentially right now where HBO was in 1997, when HBO started to shift from acquiring content to paying for original content (Larry Sanders) to making the content in-house (Oz).
Now, granted the current world moves faster -- and Netflix is already potentially approaching the 1997 spot in just two and a half years with this strategy -- BUT content is also now more expensive (The Sopranos and Sex and the City were not $100m shows for a total of 26 episodes like House of Cards is), competition is fiercer than ever and the overall economics of television are not as advantageous as they once were.
I would also say that a third advantage is cable. Yes, cable is an advantage. Why? Because cable often serves as free (or nearly free) advertisements for HBO shows and the bundling of HBO for 3 months free or half-off or whatever is a huge driver in subscribers. Now, Netflix can replicate this, but they'll need to do it at a price and obviously they'll need to assess if giving the cable companies 30% of their monthly revenue is worth the advantages of being bundled.
None of this is insurmountable, but just as starting a movie studio from scratch is hard -- pivoting from a pure distributor into an original content creator/distributor is hard too.
I usually think of the comedy specials as HBO's original content, going back to the 80's even. Given how successful LouisCK has been, it could be an opportunity to take this jewel from HBO in the near term. As shows like last comic standing have shown is that there are a lot of comedians out there that are very entertaining, the production costs can be relatively high quality, and low cost. Building out that area could be really good for Netflix, which already has a lot of older stand up content.
Is "a premium brand" a main obstacle preventing new entrants into the content production market? There is another large obstacle: acquiring subscribers to fund the production. Netflix already has a massive subscriber base. HBO needs to convince people to subscribe to their content and to watch their content. Netflix already convinced a massive subscriber base to subscribe to its content. Now all it needs to do is convince them to watch it.
EDIT: I think my post addresses filmgirlcw's point well. Yes, it took 15 years for HBO to cultivate their seal of approval. But that is partially because cultivating a seal of approval required HBO to build its subscription base, which takes time. Netflix already has its subscription base, so it only needs to convince that subscription base to watch its content. It can do that by 1) advertising prominently within Netflix (near zero cost), and 2) producing quality content, so that once people watch the first episode of a Netflix show, they want to watch the second. Therefore, the highest cost to Netflix is that of producing quality content. But as long as they can do that, they will succeed because they already have the audience. Of course, they do need to recognize that they only have a small window of opportunity to show that they can, in fact, produce quality content -- or else they will lose the willingness of their subscriber base to watch their originals.
But Netflix has to retain that audience. As we saw with the price hike, people by the millions will drop their subs and fast. TV is a hits based business -- HBO has to deal with that too, post Sopranos and SATC, it struggled for a few years to find the hits.
I'm also not sure if you understand that HBO has has subscribers in the tens of millions for decades. That's my point, they've cultivated this premium brand but have been a part of many customers lives for years. I'm 30 and I've never NOT had HBO.
My parents have had HBO literally since 1972. 41 years. I realize that's an extreme example but the network has a strong brand.
HBO and Netflix aren't in a zero sum game; both can succeed. It's just that as Netflix moves into HBO's pool, it's going to have to face the issues HBO already faxed, whereas HBO won't have as hard of a time shifting to over the top once the business model makes sense.
Excellent point - I was going to add brand to my above reply but didn't in the interest of time (and because I'd probably attribute brand to experience).
HBO has a quality seal of approval that has taken 15 years to cultivate. That can't be bought or earned overnight from one show. HBO consistently gets more Emmy nominations than every other network -- once Netflix is able to counter in that area, then it will happen.
Still, getting over the hump can happen. Look at AMC. Before Mad Men and The Walking Dead, they were best known for the terrible original series Remember WENN (don't ask, it sucked and I was in 7th grade when it premiered). Now it's easily one of the best networks on TV. Same for FX. Justified, Always Sunny, Sons of Anarchy, Archer, The Americans are all fantastic and this was a brand that was best-known for playing Fox reruns until about 7 years ago.
Here's the thing--I didn't even know, until your comment, what channel Archer was on because I watch it on Netflix. That's what HBO is looking out for.
