AMC Networks Inc (AMCX), Time Warner Inc (TWX): The Controversy Over Laura Prepon’s Return Shows Netflix, Inc. (NFLX) Is Doing It Right

Given that Netflix is only modestly profitable, the company will be forced to raise prices (and hope its members stay) or continue to add new subscribers. Management believes it can accomplish the latter; in fact, CEO Reed Hastings has said he believes Netflix can triple its current subscriber count.

Perhaps it can. But if it did, it would prove to be far more successful than HBO, whose base of domestic subscribers has floated near 30 million for the last several years. Netflix does have one advantage over HBO — it doesn’t require a cable subscription. Anyone with the Internet can get Netflix, but to get HBO, one needs a cable package. Netflix, then, costs just $8 per month — HBO could cost as much as $100.

HBO has its own online service, HBO Go, that is on par with Netflix. But to use it, you still need cable. There have been reports that HBO was considering offering the service separately, but so far, nothing has come of that — and it seems unlikely. HBO’s parent company, Time Warner Inc (NYSE:TWX), owns several other cable networks, including TBS, TNT, CNN, and Cartoon Network. Offering HBO a-la carte would be a strike against the larger cable complex, of which Time Warner Inc (NYSE:TWX) is a major player.

Netflix has successfully made the switch

Back in May, I warned that Netflix was taking a gamble, one that could alienate many of its subscribers. By refusing to pay for bulk content in favor of exclusive deals and original programming, Netflix was fundamentally changing the structure of its service.

But the bet appears to have paid off. Admittedly, it’s still in the early innings — Netflix has many more shows planned. But for now, investors have to be happy with the company’s recent track record. Orange is the New Black has built up a cult following virtually overnight — a first for the industry. More generally, the emergence of the serialized TV show (even ones from other networks like AMC Networks Inc (NASDAQ:AMCX)) benefits Netflix.

The article The Controversy Over Laura Prepon’s Return Shows Netflix Is Doing It Right originally appeared on Fool.com and is written by Sam Mattera.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends AMC Networks (NASDAQ:AMCX) and Netflix. The Motley Fool owns shares of Netflix. 

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