Time Warner, parent company, of HBO has decided to not continue selling its DVDs to Netflix, which means that Netflix would have to purchase the DVDs from another source and pay retail prices. HBO is also getting into the streaming game with its HBO Go format.  Apparently, two can play the "me too" game because Netflix is producing original programming for its service.

Generally, choice is always good for the consumer, however the same cannot be said for the business.  Time Warner has a market capitalization of $36.55b and is more diverse than Netflix.  Even though, Time Warner Cable was spun off in 2009 that does not impede Time Warner's continued ownership of national cable channels such as TNT, TBS, CNN, and CW among others.  Time Warner is in a great position to push its Time Magazine content through its CNN channel or Warner Bros. movies through its other channels.  These are tie ups that Netflix does not have, but based on the move into original programming - would like to have.

Netflix is a threat in that it is an alternative to ever increasing cable bills, which during the current negative economic climate seems more discretionary than necessary.  The problem for Netflix is the throttling of the streaming business, especially when the streaming business segment is the one that Netflix is promoting as its future.  One really large externality for Netflix is consumer access to high speed internet at a reasonable price.  Not every consumer lives in a metropolitan area with access to high speed internet.

TV is still largely consumed in the home (university dorms not included) so mobile devices are less influential.  HughesNet provides satellite internet service for those that do not have a cable option.  The HughesNet option is not cheap - average $56 monthly for the second from the bottom package.  This package cannot support Skype or Netflix.  The point is that Netflix is not just $7.99 a month - it is $7.99 plus any cost that is required to support the underlying internet connection.

It is not all roses for consumers that have a reasonable price for high speed internet because as the internet traffic increases so does the stalling of the Netflix streaming.  This is an underlying resource limitation that Netflix must consider.  Additionally, the Xbox Netflix option is much less user friendly than the one consumers find using their laptop or desktop.  Netflix has been a darling stock on the S&P 500 only faltering with its public relations nightmare and subsequent subscriber exodus in September.

Time Warner is arguably better positioned to withstand any competition from Netflix due to its rather secure position with its national cable channels that are conduits for its other businesses.  The national cable channels that Time Warner does own are mainstay channels not like the OWN channel (oprah winfrey network).  Unless weather related, satellite cable does not stall the more users that "log on".  Time Warner does not have to invest in branding like Netflix will with its foray into original programming.

Netflix is akin to the post office - passing along someone or something else's work.  Netflix has blindspots and with Reed Hastings at the helm there is likely to be more missteps or fumbles.  Time Warner can take down Netflix if it exploits the temperamental myopic leadership of Reed Hastings.  Netflix can withstand the assault if it acts more like a cable or satellite provider.  Delivering less than expected is not a sound differentiation strategy.