Netflix (NASDAQ:NFLX) is taking steps to reach its goal of becoming HBO. It's currently in talks with cable providers, including Comcast (NASDAQ:CMCSA), to make its service available as an app on their set-top boxes. Netflix already has a deal with Virgin Media in the UK to allow TiVo (NASDAQ:TIVO) subscribers the opportunity to access the service right on their TV sets. A deal with a cable provider is positive for Netflix, but should cable companies, like Comcast, be teaming up with the proverbial "cable-killer?"

Netflix's biggest competitor?
Netflix has long been the centerpiece of the cord-cutting discussion. Is the value of entertainment Netflix provides for $8 a month enough to forego a cable subscription?

Yet, despite the huge growth in Netflix's U.S. subscribers over the last year, cable still added subscribers in 2012. That suggests that Netflix is viewed as a complement to cable, not a replacement. It's more like HBO.

Unlike HBO, however, you can subscribe to Netflix without a cable subscription. Comcast may believe adding Netflix integration is the best way to keep Netflix subscribers from ditching their cable subscriptions.

The real winner of deals like the one Netflix made with Virgin Media is TiVo. Subscribers gain an added incentive to buy a TiVo set-top box so they can stream Netflix directly to their TV sets without the friction of switching inputs. In fact, smaller cable companies like Virgin, those that don't produce their own set-top boxes, will do the selling for TiVo.

On the other hand, TiVo stands to lose if Netflix makes a deal with bigger cable companies like Comcast. Currently, TiVo offers cable subscribers an alternative set-top box that allows them to stream video through Netflix or several other Internet video services. If Comcast integrates that into their boxes, TiVo will likely lose out.

A better option for Comcast
I think Comcast has a better option available that will keep subscribers around, provide it with more pricing power, and make its content partners happy -- Video on Demand.

Video on Demand, or VOD, has been around for more than a decade. In the early years, it was used by cable companies to sell premium movie rentals and distribute children's shows. In more recent years, since Nielsen started counting VOD views toward ratings, cable companies have been able to add more prime-time programming.

VOD views are growing strong. ABC shows increased views 32% last year. Analysts estimate that shows on Fox and ABC add up to 300,000 additional viewers per episode through VOD. Comcast increased VOD hours 14% in 2012.

If Comcast made a deal with Netflix, it would likely lose VOD viewers. Why would the company want to cannibalize a growing segment of its business? It should, instead, invest in it.

Why content providers would choose VOD
Last season, Nielsen started counting VOD views like it does DVR views -- any view within three days of a show's original air date counts toward the total audience. Unlike DVR, however, VOD is capable of disabling fast-forward capabilities, which means no skipping commercials.

Content creators don't get paid for commercials that viewers fast-forward through, and don't receive any payment for views more than three days after the original broadcast. DVR households fast forward 70% of commercials according to CBS research. Moreover, VOD is capable of updating commercials, and Comcast has partnered with Fox and company-owned NBCUniversal to implement dynamic ad insertion to continue generating revenue after the three-day window.

That trend creates a huge incentive for content creators to draw viewers toward VOD services and wean them off of DVR. Comcast can leverage that to improve its content library, which currently stands at 36,000 titles over set-top boxes and 270,000 titles online through Netflix offers somewhere around 60,000 titles for streaming.

Comcast and other cable providers are more than capable of competing with Netflix for content. The dual revenue stream of upfront price and advertising revenue, makes cable VOD potentially more attractive than Netflix single stream subscription model. Moreover, Comcast has enough revenue, from its multiple operations, to compete with Netflix for content.

Better to go it alone
Comcast doesn't need to offer its subscribers the option to watch Netflix. It might help it keep subscribers and sell a higher bandwidth Internet service, but it may be better if it goes it alone and increases its investment in VOD. With a high-quality VOD service, Comcast gains pricing power. In fact, Comcast raised the bill for 72% of its subscribers in the first quarter of the year.

It has a strong infrastructure with its Xfinity TV Everywhere service. And it already has strong relationships with the content providers. There's no need for it to cannibalize a growing part of its cable business by partnering with Netflix.

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.