If broadcast TV is smart, it will do a deal with Netflix.
Netflix (NASDAQ:NFLX) is on a similar path that Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and others found themselves on some time ago and where they failed, Netflix might just succeed. Netflix is trying to convince the broadcasters to put its application onto their hardware and thereby massively increase its reach. With the right terms this could be beneficial for both the broadcasters and Netflix. Netflix because it would massively accelerate its reach and broadcasters because it will secure them a future as the world moves to over-the-top television. Less than 10% of US households have actually cut the cord meaning that the market for over-the-top TV remains very small in the grand scheme of things.
I have no doubt whatsoever that over-the-top is the future, but at the moment the broadcasters still hold all the strings. Almost every TV exec I have ever met is in complete denial when it comes to the ending of the broadcast TV bonanza. For this reason I am fearful that the industry will not see the light until it is too late.
Netflix and its competitors are going to destroy broadcast because they offer a more convenient way to watch content and because the user only has to pay for what he wants. The one exception is sports, where users will not put up with time-shifted television. Some drama and reality TV shows are attracting a strong social media following and these too may also see some resistance to the move to time-shifted TV.
All of this aside, right now broadcast still has massive power because of its better than 90% reach in the US market and globally. Its most dangerous adversary is currently, cap in hand, wanting to do a deal and it is now that broadcast will get the best terms. In 10 years time when 30%+ of the US has cut the cord and the numbers are rapidly accelerating, the terms will be much worse. Broadcast has the opportunity to give something away now in order to secure its long-term future.
It would be wise to take it as the sword of Damocles hangs by a thread.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.