Netflix, Amazon and Hulu have suddenly found themselves playing a new role: the establishment.
After years of waging an assault on the traditional television business, these companies now must defend their turf on the battleground of the future, Internet streaming. HBO, Apple, Sony, Dish and other companies that were once challenged by services like Netflix have stormed onto the field in recent weeks, making a splash with new streaming offerings and bold pronouncements on reinventing the way people watch and pay for television.
Those advances raised the stakes for Netflix, Amazon and Hulu, which not only invented the category but also induced a wave of TV fans to watch their favorite programs without paying for a cable or satellite subscription. Now, new competition is forcing those companies to invest even more in exclusive, original productions, innovate their technologies, explore new partnerships and ramp up their marketing.
"In a world where HBO and CBS and all of these guys are trying to go to the Internet, it looks like all of the guys on the Internet are trying to come to the television," said Kannan Venkateshwar, a media analyst at Barclays. "The worlds are actually converging in both directions."
Netflix is framing HBO's push into streaming as less a competitive threat and more a validation of Netflix's own philosophy for Internet television.
"A lot of people will subscribe to more than one service similar to the way they do with apps on their phones or magazine subscriptions," said Anne Marie Squeo, a Netflix spokesman. "So there's room for multiple Internet content providers to thrive if they're delivering great shows and movies for a reasonable price."
The convergence of the new and old television worlds is illustrated by the shift in the rivalry between HBO and Netflix. In 2011, some TV executives rolled their eyes when Reed Hastings, Netflix's chief executive, pointed to HBO as his company's main rival, and HBO rejected the comparison.
Netflix was still recovering after a botched plan to increase prices and split itself into two separate companies. Millions of angry customers canceled their subscriptions. Netflix's share price plunged to less than $53 from just under $300.
HBO, meanwhile, had a long and profitable track record as home to award-winning hits like Game of Thrones and Boardwalk Empire and early success with its HBO Go app.
"They're becoming more Netflix-like," Hastings said in 2011, pointing to the HBO Go streaming product. "We're becoming more HBO-like," he added, pointing to Netflix's plans to distribute original content like the House of Cards political drama.
Four years later, that rivalry, at least in the domestic market, is more direct.
About 2 in 5 American households now subscribe to a video streaming service, with Netflix leading the pack, according to the media research firm Nielsen.
While HBO remains far more profitable, with many more global subscribers, Netflix now counts about 40 million paid subscribers in the United States to HBO's 30 million. Netflix also has ramped up original production, with plans for 320 hours of new and returning original series in 2015, including Orange Is the New Black, Unbreakable Kimmy Schmidt and Bloodline.
HBO's new streaming service, called HBO Now, is aimed at the 10 million homes in the United States that pay for Internet service but not cable or satellite television subscriptions -- about half of which subscribe to a streaming service like Netflix.
To prosper, analysts say, Netflix, Amazon and Hulu will have to spend even more on the production and marketing of exclusive comedies, dramas, films, documentaries and other shows. The greater the acclaim and the more exclusive the offerings, the easier it will be to distinguish the services and persuade people to pay up every month.
Already, Netflix is expected to spend more than $450 million on original programming this year, up 88 percent from $243 million in 2014, according to the MoffettNathanson research firm.
"You have to differentiate yourself relative to the mainstream," said Michael Nathanson, a media analyst with MoffettNathanson. "The defining feature of those services will be original, first-run content."
Continuing to invest in technology and the TV viewing experience will also become increasingly crucial, analysts said. Hulu is hiring a couple of hundred more engineers this year to innovate its service with new personalization and other technologies. Hulu is the only one of the three big digital-first streaming services that shows ads, but it is exploring how it could reduce the number of ads.
Some TV executives said that the introduction of more streaming offerings could actually propel more people to subscribe to Netflix, Amazon and Hulu.
The thinking is that TV fans previously may have hesitated to cancel their cable or satellite subscriptions because there were fewer online options. Now that there are many more, consumers may decide to put together a menu of services that could potentially include the big three, and still pay less than their monthly cable bill, which comes to an average of $90 per household, according to the data firm SNL Kagan.
SundayMonday Business on 03/30/2015