Is Netflix Repricing TV to What the Market Will Bear?

Includes: GE, NFLX
by: Wall St. Cheat Sheet

Television is undergoing a major transition. If TV execs don’t get their heads out of their ... assets, they may find themselves watching people steal TV as often as music.

In an interview conducted by the Financial Times, Time Warner (NYSE:TWX) CEO Jeff Bewkes said Netflix (NASDAQ:NFLX) is not charging high enough prices for premium content.

“Netflix is offering $50,000-$100,000 to stream current television shows, Mr. Bewkes said, but traditional channels still pay “millions of dollars” per episode. New online entrants, he said, would have to pay the same as traditional channels.”

Uh, when an industry is disrupted by new distribution channels, things change. Apparently, some people don’t have the common sense to see what happened to the music industry’s fight with natural market forces.

Let’s start from the beginning:

Earth to business executives! The internet is one of the biggest technological changes in human history. Everything must adapt. Do you read? Over.

Mr. Bewkes, traditional channels now have competition. In economic speak, that means prices will readjust (whether you like it or not).

In the case of internet television, companies such as Netflix and Hulu (NYSE:GE) are discovering what prices the market will bear. Consumers have more entertainment choices than ever. As the Web gets bigger, the number of entertainment choices will only increase. As a result, the value (i.e., price) of each individual form of entertainment will generally decrease.

Most television executives, like music executives, simply wish the good old days of limited entertainment choices and distribution channels remained forever. Well, history is riddled with countless powermongers who rejected inevitable change.

IMHO, television executives and media companies that understand and bow to price discovery will get a huge lead on their outdated peers. As the cost of video and production equipment continues to drop and the skills to do these functions become cheaper as a result of commoditized expertise, television companies must figure out how to pass savings on to customers. This might (GASP!) also mean the cost of acting talent needs to be repriced to the downside as well.

But hey, I don’t get paid the big bucks to make the television sausage. So television executives, stop living in the past and start earning the enormous paychecks that also contribute to our inflated pricing for television entertainment.