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Netflix threatens cable, satellite with cost and flexibility

Despite a lower quality of user experience than broadcast options, Netflix rates higher in customer satisfaction than traditional television because of the flexibility it offers, and because the price is right at $9.99 per month.

That's according to a new study from Parks Associates, which says the results raise the spectre of cord-cutting.

"Customers can pay for a month of Netflix for about the same amount as for two pay-TV VOD movies," said Brett Sappington, director of research with Parks Associates, in a statement. "Parks Associates research shows consumers know the quality of the OTT service is not comparable to pay-TV quality, but the cost-benefit comparison is enough to affect their purchase decisions."

The research showed that 16% of U.S. broadband consumers have considered using an online subscription service, while 17% of consumers watching TV on a premium channel like HBO considered using Netflix instead.That suggests, researchers said, that Netflix influences the decision processes of pay-TV consumers, raising the potential for Watch Instantly to cannibalise pay-TV VOD offerings.

TV providers are attempting to combat the threat with a range of TV Everywhere services for viewing content on mobile and PC devices. HBO GO is the poster child for a service that subscribers sign in to use--the offering has been highly successful to date. Comcast has launched an over-the-top service called Streampix for its customers, in addition to its iPad app, while DISH Network offers the Blockbuster Movie Pass to customers for multiscren VOD. Verizon is partnering with Redbox to launch a similar service later this year. All of these services offer an almost embarrassment of choice in first-run movies and library content, hitting directly at Netflix' main weakness, which is its lack of premium offerings. Also, these services are managed services, making for a much better quality of experience.

That may not be enough to block the competitive threat, Parks said.

"Netflix is competitive against VOD and premium channels because it has a decisive edge in cost," said John Barrett, director of consumer analytics with Parks Associates. "Its greatest weakness is picture quality, but there are times when the consumer will sacrifice quality for other considerations. Pay-TV providers should emphasise their inherent advantages in content and picture quality but also need to develop alternative services that counter Netflix's advantages in cost and flexibility."

From the article, "Netflix threatens cable, satellite with cost and flexibility" by Michelle Clancy.

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