After years of jockeying with cable providers, Netflix may be on the verge of making peace with the industry and becoming another set-top-based video service that cable operators can offer and promote to their subscribers.
According to a report in The Wall Street Journal, Netflix Inc. (Nasdaq: NFLX) is now talking with several major US MSOs, including Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Suddenlink Communications , about placing its popular streaming video service on advanced cable set-tops. Under the framework for such a deal, Netflix would become an app on these set-tops, effectively relinquishing its status as the leading over-the-top (OTT) video rival to cable providers.
The Journal report stressed that the talks are still in the early stages and that no deals with US MSOs are imminent. The report also noted that there are still several major obstacles to any deals, including a clash over a special streaming program that Netflix uses to deliver its service to most participating broadband providers’ networks.
Netflix and Suddenlink declined to comment on the report. Comcast could not be reached for comment before this story was posted.
The reported talks come just a few weeks after Netflix struck a landmark deal with Virgin Media Inc. (Nasdaq: VMED), the large British cable operator that was just taken over by Liberty Global Inc. (Nasdaq: LBTY). Virgin is now testing an integrated Netflix-TiVo service in 40,000 cable homes with complink TiVo Inc. (Nasdaq: TIVO) set-tops, with plans to launch the combined service commercially throughout the UK next year. (See: Euronews: Orange Fears Merger 'Earthquake'.)
In addition, Netflix recently struck a deal with com hem AB , Sweden’s largest MSO, to offer the subscription streaming service to cable subscribers there. Similar to Virgin, Com Hem plans to offer Netflix to customers with new cable set-tops equipped with TiVo’s software and user interface before the end of the year.
But, even with these two European cable pacts under its belt, a deal with a major US MSO would represent a major breakthrough for Netflix. The company, which has battled on and off with US cable operators for years, has been angling for such a deal for months. In fact, at a recent investors conference in New York, Netflix CFO David Wells reportedly said his company would “love to reduce the friction to the end user” by finding a home on cable set-tops.
A peace treaty between Netflix and the cable industry would also make a lot of sense for cable operators, who have seen many subscribers cut the video cord or at least downgrade their cable service in favor of such broadband-delivered OTT services as Netflix, YouTube, Hulu, and Amazon Instant Video. Cable operators are also looking to sell more premium services to their highest paying video customers and enhance their broadband packages with more attractive content offerings.
But, as the Journal reported, the prospective deals could get tripped up by strong disagreements over Open Connect, a private content delivery network (CDN) that Netflix relies on to stream its service to the edge of broadband provider networks. Although such major US cable operators as Cablevision Systems Corp. (NYSE: CVC), Suddenlink, and RCN Corp. have signed up for Open Connect, others have resisted, including Comcast and Time Warner Cable Inc. (NYSE: TWC), because they fear that other OTT providers would then seek the same special treatment for their services. (See: TW Cable Slams Netflix's 'Super HD' Policy.)
In addition, some cable operators reportedly fear that if they open their set-tops to Netflix, the OTT provider will take advantage of that opening to sell pay-per-view and other services that compete directly with MSO offerings. That fear, the WSJ said, is one of the concerns that have made cable operators wary of making peace with Netflix for years.
— Alan Breznick, Cable/Video Practice Leader, Light Reading