Netflix Considers Teaming Up with Cable Companies: What Does It All Mean?

Netflix Considers Teaming Up with Cable Companies: What Does It All Mean?

Mar 07, 2012

Netflix logoNetflix CEO Reed Hastings has been sharing his vision for the company’s future lately, as they attempt to adapt to a ever-changing digital entertainment universe. One of his big ideas is to take the DVD rental and streaming giant and partner up with cable companies, who would then offer Netflix as a sort of On Demand alternative to their subscribers.

Hastings assured everyone that such a plan was part of the company’s distant future, but Reuters reported yesterday that he’s already in discussions with various cable providers to make the vision a reality. The real question is: What does this mean for you?

The answers aren’t entirely clear at this point, but one thing is for certain – a Netflix/cable provider partnership could dramatically change the entertainment landscape. For example, if Netflix were able to sell both direct to consumer (its current set-up) and through cable, that means content providers like HBO could then turn around and demand the same – thereby bypassing cable providers and offering their own original content directly to the viewer at a reduced rate. That, as it turns out, may be the biggest impediment to this sort of Netflix/cable crossover ever happening.

The boon for cable companies is that by bringing Netflix into the fold, they could theoretically stem the tide of “cord cutting” – the practice where people drop their expensive cable and replace it with the much cheaper $7.99 a month Netflix streaming alternative. Currently, streaming Netflix to a TV requires either a videogame system with an active Internet connection, a Roku-type set-top box, or the ability to hook your PC directly into your television. By providing Netflix through a cable box (which most people already have) it would be easier to get the service as an addition to what cable already offers.

One has to wonder, though, if this deal would really benefit cable at all. Netflix has millions of subscribers already who are perfectly content with the viewing options presently available. They’re not going to ditch their current streaming deals to get the same service through their cable provider. Those cords will remain cut. That being said, it appears as though the industry is banking on the many other millions who currently do not utilize the service to jump onboard. It’s too soon to tell if that will happen, but Comcast is interested in this sort of streaming-on-demand material, and has launched its own service. Meanwhile, Verizon and Redbox are looking to take on Netflix on their own turf at some point later this year. Clearly, a lot of companies think there’s a market to be tapped.

Some analysts are already seeing this potential move as a negative for Netflix, saying it could indicate that the company is struggling to find new arenas to lure in subscribers. As the service continues to hemorrhage movie titles as streaming deals with studios expire, Netflix certainly has lost a bit of its shine. The company, who once could do no wrong, suffered through a disastrous 2011 that saw subscribers bolt at news of price hikes and the announced splitting of the service. If this comes to pass they’ll either have to raise prices or take a smaller piece of the profits since they’ll be sharing their income with the cable companies. Analysts never like that.

What may work out in the company’s favor, though, is that partnering up with the cable companies is a sign of Netflix joining the entertainment establishment after years of being the renegade upstart. Hooking up with the likes of Time Warner may, in the long term, lead Netflix to better deals on streaming rights to titles as they become entrenched in the system. If you can’t beat ‘em, join ‘em.

Another potential benefit involves bandwidth. With streaming movies eating up more bandwidth than pretty much anything else the average person does online and a potential future where people are charged based on usage, teaming up with the guys who have the biggest pipelines (the cable companies) could help Netflix lower the potential cost of streaming films in the long run.

Reuters indicates that Netflix may attempt a trial run of the new program with an unnamed cable provider later this year. As to how things will work out? We’ll all just have to wait and see. 

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