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HBO on Amazon Prime Exposes Weakness At Netflix

Stocks in this article: AMZNTWXNFLX

NEW YORK (TheStreet) -- The media has lost its ability to think for itself. Something happens -- whatever it is -- and intuition immediately fuels tweet after tweet and story after story of echo chamber regurgitation.

It's groupthink at its worst.

Almost to the person you get the same stale -- for want of a better word -- opinion on everything. Case in point -- the deal that brings select three-year old Home Box Office (HBO) (a division of Time Warner (TWX)) programming to Amazon.com (AMZN) Prime customers.

Here's what matters:

  • The addition of some HBO programming makes Amazon Prime more attractive. Obviously. But you can say this about dozens of other improvements Amazon constantly makes to its ecosystem. 
  • The deal highlights the fragility of Netflix's (NFLX) business model. It also underscores what a horrible CEO -- despite his smoke and mirrors and seductive way with the media -- Reed Hastings is. Had he approached competition with HBO differently (e.g., with some humility), he might be getting this deal rather than Amazon. There's no question in my mind he would love to have it.
  • Expect more of this type of thing from HBO. They're in the early stages of what will be/is a move fast when necessary, ever-evolving digital strategy.

And, as per a popular talking point, more "young people" will be exposed to HBO programming, thus -- so the theory goes -- motivating them to find a way to catch the network's current slate. Because, of course, that's what most "young people" do these days -- clamor for ways to watch "The Wire" through their Amazon Prime account.

Another thing I'm hearing ...

The HBO/Amazon hookup angers cable. Um. No. In fact, it's pretty much the polar opposite. If indeed watching old -- and not even completely top tier -- HBO programming via Amazon intrigues people, cable companies could stand to benefit. But, that aside, they already are benefiting in a big way.

If you watch television at all, you may have noticed an uptick in the number of commercials selling you on cable with HBO as the main hook. Here in Southern California, Time Warner Cable's (TWC) is pushing them hard. I watch stations in Comcast (CMCSA) markets (during baseball and hockey telecasts) and see the same. However, I cannot attest to the frequency outside of my home market.

In any event, cable realizes now more than ever that HBO is a way to sell people. It's not something to hide as a cost. Rather it's a valuable benefit made even more attractive by the emergence of HBO GO and smash hit originals such as "Game of Thrones" and "True Detective." (And, unlike Netflix, HBO has and reports the numbers to support the "smash hit" claim).

The relationship between cable and HBO, as far as I know, has never been better.

But that's it. Just a small step forward by HBO doing what it has always done. Without diluting it, HBO monetizes its content as effectively as possible. That's something Netflix cannot do because it doesn't have long-term rights to its originals. And, even if it did, it's not in the position to, say, hold back "Sex and the City." That's the impressive part. HBO's so powerful it can create a media spectacle by licensing its second and third tier stuff three years after it first aired.

And, I stress, it's not finished. It doesn't take a rocket scientist or Elon Musk to figure that out.

What's lost on a lot of people through constant Netflix hype is that this nimble display of dominance isn't new for HBO. Even as the love affair with Netflix raged, HBO has been operating at the top of its game.

Even head Netflix cheerleader David Carr of The New York Times acknowledged this in a recent column:

Right now, in spite of all the competitors who are trying to eat its lucrative lunch, the premium cable service is crushing it.

2014 will be go down as the year the media and the stock market's free love tryst with Netflix cooled and, quite possibly, ended. HBO will have the last laugh. That's what you should take away from this Amazon/HBO deal. It's not a Netflix killer, but it's a deep flesh wound. 

You should be able to ascertain the old and new media that operates from a position of strength and the one that only acts as if ...

--Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is a full-time columnist for TheStreet. He lives in Santa Monica. Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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