Update: Netflix shares fell as much as 26% Thursday after the online streaming company reported that new subscribers growth fell well below expectations. For the quarter, Netflix added 980,000 new customers in the U.S. versus the earlier projection of 1.33 million. The company's decision to raise it's monthly cost by $1 for new customers was largely attributed to the disappointing performance. However, net income did grow 83% to 96 cents per share, 3 cents ahead of analyst expectations, and revenue was up 27% to $1.41 billion, which was inline with expectations.

Give it to HBO (TWX) – they sure know how to pick a fight. While rival Netflix (NFLX) was preoccupied with preparing for the release of their crucial quarterly earnings report, HBO announced that as soon as next year their streaming service HBO Go would be available separate from cable bundle packages. That is, HBO was finally ready to shed the yoke and prove they’re ready to make it on their own. The lone cable company that truly understands the new media landscape was no longer bogged down by vestigial cable programming, and could finally take Netflix on as an unencumbered, head-to-head competitor.

 

If HBO was looking to shake Netflix investor confidence prior to their earnings call, they certainly scored a minor victory. Immediately following the announcement shares of Netflix dropped a full 3 percent. Not catastrophic, but added insult to injury to say the least.

Netflix shares had already fallen 5 percent in week, all before Netflix’ Earnings Day also became HBO’s Independence Day. It seems investors are finally, truly, for real this time becoming skittish that the biggest gainer in the entire S&P 500 last year was finally due a bit of a correction.

But at the same time the analysts see nothing but good times ahead for Netlfix, HBO growth be damned. As noted by Marketwatch, Netflix is already as big (by market cap) as network leader CBS (CBS) with faster growth and ore assured revenue streams to boot. They are expected to have 100 million subscribers at $8.99 a pop by 2017. Netflix also spends $1 billion more a year on acquiring and developing content than HBO does, notably with a foray into the big leagues of feature filmmaking in the form of a four picture deal with Adam Sandler.

So how can HBO look to compete with a company that looks to become the dominant force in entertainment within three years, if it isn’t already? Perhaps it’s that what is painted in the media as an direct war between the two isn’t so direct. If HBO Go is unbundled it’s not out of line to assume many customers will buy both services. After all, while cable subscriptions are dropping the majority of households with Netflix also have cable at the same time. And HBO Go will be far cheaper than a traditional cable package, which can sometimes range up to $200 a month in some markets.

HBO Go’s new independence doesn’t mark the beginning of a Coke vs. Pepsi head-to-head so much as a the quickening of cable’s downfall. Rather than eat into Netflix’ margins the independence will more likely even further exacerbate “cord cutting” phenomenon, as both companies continue to grow while traditional media falters.

Regardless of intentions, the market still watches Netflix carefully, and the earnings report will answer many questions about what the future of entertainment truly looks like. Netflix is expected to earn $0.90 a share on revenues of $1.414 billion.