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HBO Hates Netflix (And You Should Too)

Tickers in this article: CMCSA DIS NFLX NWSA TWX
NEW YORK ( TheStreet) -- I first saw the story over at TechCrunch: Time Warner's (TWX) Home Box Office signed a deal with Universal Pictures , a division of Comcast (CMCSA) , to keep the latter's films on the former's air through 2022.

Simply put, if you want access to roughly half of Hollywood's top releases -- after they leave the theater -- you'll need to subscribe to HBO through a cable or satellite company unless, someday, Time Warner offers HBO GO a la carte.

There's no question -- HBO and TWX execs were trading high-fives after this deal. While Netflix (NFLX) is more of a pest -- a veritable ankle-biter -- than a true threat, I know they enjoy knocking Reed Hastings around.

The comments that followed TechCrunch's story show a misunderstanding of the media business -- "old" and "new" -- as well as a sense of entitlement enabled, in part, by the illusion that Netflix operates from a position of strength.

The overarching reaction: Consumers lose. And, ultimately, because they're not "listening" to "what consumers want," HBO, Universal and others like them will lose . Wrong. That's where the misunderstanding and self-entitlement comes in.

Despite the cat calls, Time Warner, led by Jeff Bewkes, is not the dinosaur it's made out to be. They're just smart business people who control a considerable amount of premium content.

Let's run through reality from a consumer and investor standpoint.

  • You should hate Netflix because it has created a myth. By charging $8 a month for unlimited viewing and somehow signing an exclusive movie deal with Disney (DIS) , they have lured the consumer into thinking content is cheap, that somehow we're entitled to everything we want to watch for a low price -- something closer to 10 bucks a month than the $50 to $100-plus most of us pay for cable or satellite.
  • Reality is as follows: Content is expensive because it costs a lot of money to make and, ultimately, the market -- to some extent, you -- sets the price. Advertisers pay big bucks to get on big-time shows and events, why shouldn't we do the same?
  • Plus, these big legacy companies need lots of cash to subsidize loser divisions such as publishing, local news and radio (things you still count on) and to keep paying out rising dividends and buying back billions' worth of stock (things investors want).
  • Maybe you only watch a handful of the dozens of options cable and satellite provide, but that's no different than paying $100 for a concert ticket to sit through opening acts you've never heard of.
  • On the large scale, cord-cutting will never take off . It's that simple. Consumers can complain all they want, but there's not going to be a day anytime soon when you can access premium content -- and that might end up being live sports and only live sports -- at Netflix prices. It's just not going to happen.
  • If you cut the cord today and wanted access to the NFL, MLB and NBA seasons, along with first-run movies and televisions series, you would end up spending as much per month, if not more than you do now. Until the old guard colludes and kills Netflix, you're not going to have a one-stop shop to stream everything. That could have been Hulu, but the dream died long before the company's CEO, Jason Kilar, resigned .
  • So, listen, it's awesome that Netflix costs $8 a month. I love it. In fact, I would gladly pay double for the present offering . But, Netflix can never be anything other than a supplementary service. If you want everything you want you'll need to pay for it. Simple as that.
  • Whether you agree with me or not -- and it's cool if you don't as I can certainly see the counterpoints -- set aside your emotion. Think like an investor. Look at the performance of the three stocks -- NFLX, TWX and CMCSA.
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