10.17.2013 11:56 AM
Once seen as a foe, cable industry begins to negotiate with Netflix
In a sign of a rapidly changing industry landscape, Netflix is talking with several large cable operators about integrating its Internet service into set top boxes.

Until recently, Netflix was considered the staunch enemy of cable television; it was one of the nascent services “cord cutters” turned to when they wanted to lower their overhead and watch movies over the Internet. Now, in a sign of a rapidly changing industry attitude, Netflix is said to be negotiating with several large cable operators about integrating its Internet service directly into their cable STBs.

Numerous media outlets are reporting that Comcast, Charter Communications and Cox Communications are in talks with Netflix about including its service in the cable companies’ own STBs, rather than through an outboard third-party box that must be independently switched for use over the Internet.

For months, cable subscribers numbers have fallen lower and lower as a result of cheap OTT video providers such as Netflix. Film and television programming is available to Netflix’s current 30 million streaming customers on Apple TV, Roku and various video game boxes, but not on the cable box itself.

It’s too early to say a deal has been done because the parties are just starting negotiations and it could take a while. However, cable providers also offer Internet service as well as television, and Netflix is growing so fast it is hard to ignore the rising numbers.

“Having the Netflix app on a set-top box is a natural progression,” Jonathan Friedland, Netflix’s chief communications officer, told the New York Times. “Our goal is to make it as simple as possible for consumers to enjoy Netflix while cable operators see value, too, because it makes their broadband service more attractive.”

In fact, behind the negotiations is a shift in the way cable operators think of themselves and their business. Time Warner Cable, reported the Times, already sees itself as primarily a broadband carrier rather than a television service. Cablevision promotes itself as “the highest-quality Netflix experience.” That’s a major shift in only a few years.

Bloomberg reported that TiVo is also a major player in the Netflix negotiations. TiVo makes STBs already installed in cable viewer’s homes, and it wants to integrate cable and Internet services into one of its TiVo-branded boxes.

“TiVo has been on a course of implementing that for cable operators,” Tom Rogers, TiVo’s chief executive officer, told Bloomberg. “We’re very supportive of bringing Netflix into the fold so that can happen.”

TiVo is negotiating with Cox Communications, Suddenlink Communications, RCN Telecom Services and Atlantic Broadband over the Netflix integration, Bloomberg reported.

“We’re rapidly moving to an environment where every device in the home, including the big TV will be connected to the Internet,” Alex Dudley, a spokesman for Charter, told Bloomberg. “Charter is open to a myriad ways of enhancing the customer experience with that technology.”

A sticking point in the negotiations, said the reports, is Netflix’s Open Connect streaming platform. Netflix reportedly wants to place Open Connect equipment in or near each of the cable operator’s systems. Some cable companies don’t want to use Open Connect, fearing it might make negotiations with other Internet companies more difficult.

Although the negotiations are in the early stages, it is clear that cable operators have changed how they view Internet services such as Netflix. They are now confronting the reality of Internet-delivered content, Andy Hargreaves, an analyst with Pacific Crest Securities in Portland, OR, told Bloomberg.

A major change, Hargreaves told the news service, is that pay TV providers are beginning to understand they can’t expect Netflix to offer them some of its subscription revenue. Instead, he added, they can use the popularity of Netflix as a tool to promote their own broadband services.

“Consumers like Netflix and they like cable, and they like them more when they can access them both easily,” Hargreaves said.



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