Netflix Ages Gracefully; Getting on Cable Set-Top Boxes Brings the Company Closer to the TV Mainstream—and Could Shake Up the Landscape
October 15, 2013 Leave a comment
October 14, 2013, 5:31 p.m. ET
Netflix Ages Gracefully
Getting on Cable Set-Top Boxes Brings the Company Closer to the TV Mainstream—and Could Shake Up the Landscape
Netflix NFLX +7.82% wants to be a cable channel when it grows up. And it may be moving one step closer to its coming of age. The online video company is in talks with several U.S. pay-TV providers to put a Netflix app on their set-top boxes. Netflix, often viewed as an alternative to pay-TV, is already available on many devices. But the fact that cable companies are considering inviting it in suggests they no longer view it as a threat.Indeed, broadband, not video, is the source of cable’s future growth. Netflix is one of the top sources of U.S. Internet traffic and a primary reason that consumers pay up for faster speeds. An app on the cable box will make it easier for existing pay-TV customers, many of whom already subscribe to Netflix, to watch while keeping them on cable.
For Netflix, which has a similar deal with Virgin Media in the U.K., this could help push up subscriber additions and viewing hours. But the company also sees it as a way to push broadband providers to adopt its Open Connect content-delivery network.
Open Connect helps Netflix save on delivery costs and helps broadband providers, particularly smaller ones, run it without overloading their own networks. But larger providers such as Comcast see Open Connect as a way for Netflix to avoid paying for its traffic—making this a likely sticking point in negotiations.
Netflix on cable boxes may pose a bigger threat to TV networks than to cable companies, according to Janney Capital Markets. More people watching Netflix could mean it pays networks more for their content. But making Netflix more like another cable channel could mean cannibalizing ratings down the line, threatening advertising dollars and potentially even affiliate fees.
TV networks could respond by yanking their content from Netflix. But subscription video on demand accounted for 5% of operating income for the six largest media companies in 2012, Sanford C. Bernstein estimates. And that is likely only to grow.
Pesky adolescent or no, Netflix is rapidly coming into its own.
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