Netflix Is Talking to US Cable Companies (Report)

/ Oct 14, 2013

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Netflix is in talks with multiple US-based cable operators, including Comcast and Suddenlink Communications, to offer its app on their set-top boxes, reports The Wall Street Journal. This follows comments made two weeks ago by Netflix CEO David Wells, who encouraged the pay-TV industry to pursue such deals with his company.

Per the report, while the discussions are still very much in the preliminary stages, a deal with a cable operator would mean that Netflix would show up on set-top devices like Comcast’s X1, ostensibly making it easier for people to access the streaming video service on the screen they are most likely to watch TV content.

One potential roadblock to any deal happening is that Netflix wants cable operators to “take on” its Open Connect technology, which is designed to improve the streaming/viewing experience on Netflix. This would involve Netflix connecting special servers directly into the broadband cable and internet providers’ networks, according to the report. So far, the operators are hesitant to do this, believing their networks can handle Netflix traffic. Comcast, Time Warner, and Verizon have already declined to use the technology.

Another potential issue is that Netflix would use this sort of access to untether the existing pay-TV business from some of their revenue streams. For example, one operator tells WSJ that Netflix could use deals with cable operators as a “Trojan Horse” to eventually sell stuff on a pay-per-view basis.

This speaks more to the existing fear the linear TV business has always had for Netflix, than anything Netflix is actually likely to do.

For Netflix, the reason for striking deals to tether its service to cable operators makes a lot of sense:

Netflix is a programmer of TV content, a “channel” that offers access to original and licensed TV shows. What makes the company different, obviously, is the way its service delivers the content — digitally, and on as many screens as possible.

That doesn’t mean that Netflix doesn’t have its sights set on the biggest screen in the house, the TV set, which to this day remains the primary method for people to watch premium programming when at home. That’s where the biggest audience is, and for Netflix, which might have an issue with its subscriber numbers leveling out domestically in the next seven years, getting on the TV screen is the end-game to its HBO ambitions.

The thing is, Netflix is already available on TV screens. The problem is, the number of users in the US who have a streaming box, or a connected gaming console, or a “smart TV,” is much smaller than the number of users who have a set-top box from a pay-TV provider. This is why Netflix has been looking to pact with cable operators to get its app on their set-top boxes, which would make it easier for the service to attract new consumers as well as retain existing ones.

And according to WSJ, TV programmers might be warming up to the idea of Netflix sharing the same piece of real-estate. Apparently, Netflix has negotiated itself out of restrictions in programming contracts with content providers that made it difficult for the streaming company to strike deals with pay-TV operators.

Netflix has already begun signing deals with pay-TV players in Europe, making the service available alongside the linear content people are used to. It’s not clear if any Netflix deal with a US pay-TV operator would mean Netflix content would show up in the TV guide search listings (as it does with Netflix and Virgin Media/TiVo). But if so, that would mark another major step in Netflix becoming the next HBO.

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