The cords are losing: Netflix overtaking HBO in paid U.S. subscribers

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We predicted that pay cable TV would join that great tech service graveyard in the sky by the year 2025. And it seems that everything is marching along according to plan: Bloomberg has reported that in all likelihood Netflix has passed HBO in number of paid U.S. subscribers.

According to analysts quoted by Bloomberg, Netflix has reached 30 million paying U.S. customers as of the end of September, while HBO can only boast 28.7 million. It should be noted that we’ve seen similar reports heralding that Netflix has eclipsed HBO based on analyst predictions before. We should get a more concrete view of the situation later today when Netflix distributes its official third quarter report including subscriber numbers.

[UPDATE: Netflix announced its official numbers, and the company boasts just over 31 million paid streaming members, along with just over 9 million paid streaming members internationally. Users of the company's DVD service have dropped from nearly 14 million in the third quarter of 2011 to just over 7 mlllion in this most recent financial report.]

Regardless of who comes out ahead in the subscriber horse race, the stratospheric rise in Netflix’s popularity represents an important paradigm shift in U.S. viewer habits. According to the Convergence Consulting Group’s report “Battle for the North American Couch Potato 2013” (you can get the partial PDF here), 3.74 million U.S. household completely cut their TV subscriptions between 2008 and 2012 and rely solely on streaming services like Netflix in conjunction with over-the-air programming. That figure is expected to rise to 4.7 million by the end of this year.

The trends are not in cable’s favor.

Something borrowed, something new

It could be argued that Netflix has become more competitive with HBO by taking cues from HBO. Specifically, Netflix is successfully pivoting away from being solely a distribution medium to becoming a producer of cutting-edge original series.

This year, Netflix’s House of Cards became the first digital platform series to win an Emmy award. The streaming network has also unleashed a critical jailhouse hit Orange Is the New Black. While that critically-acclaimed series has not yet had an opportunity to make an impact at the Emmys, it has certainly made its presence felt at the water cooler.

Beyond content, Netflix is rumored to be in talks to bring its service to set-top cable boxes, where it would compete directly with the HBOs and Showtimes of the world.

Tony Soprano
Tony should listen to Uncle Junior’ s warnings about consumer TV watching habits.

Meanwhile, HBO has proven comparatively intransigent to altering its decades-old business model. Despite an online campaign pleading for the company to decouple its popular streaming service HBO Go from a cable subscription, HBO has given little more than hedge-y lip service to this possibility. It’s probably not irrelevant to mention that HBO is a subsidiary of Time Warner, the second largest cable provider in the United States.

It’s not TV, it’s becoming irrelevant

Whatever the official U.S. subscriber numbers are, it’s not deathwatch time for HBO—yet. Netflix still lags far behind HBO in terms of global subscriber base. Netflix can only claim only 37.6 million viewers around the world as of June, while HBO boasts 114 million paid subscribers globally (in conjunction with the lesser Cinemax brand). But that doesn’t mean HBO can sit around and wait for the market to change back to 2003. It won’t.

Consumers still really like HBO programming, but they are embracing the cord-free lifestyle in growing numbers. Unless HBO maneuvers away from its cable-centric product, even the best shows in the world won’t halt a decline into broadcast-like irrelevance. It’s just a matter of time.

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