In what appears to be a win-win on the surface, Netflix (NFLX +2.90%) is reportedly negotiating with several pay-TV companies to incorporate Netflix into their set-top boxes. Sources are telling The Wall Street Journal that the talks are in their early stages, but naturally, it would be a pretty big deal if your own cable box could hook you up with your growing Netflix queue.
It's no secret that Netflix has wanted to play nice with cable and satellite television providers. It has proposed offering its flagship video service alongside HBO, Showtime, and other premium movie channels for pay-TV providers to cash in on the booming popularity of streaming video. It recently landed a deal with Virgin in the U.K. for a similar arrangement. Pay TV has been reluctant, fearing that educating consumers on the merits of Netflix will encourage cord-cutting.
At the very least, Netflix's growing digital catalog at $7.99 a month will make it hard for the premium movie channels, which cost twice as much.
However, Netflix is on a tear. Domestic streaming subscribers have grown from 24 million to nearly 30 million over the past year, surpassing the top premium channels. Warming up to Netflix would make sense, as providing educated buffs with more convenient access to Netflix may make them less likely to cut the cord.
There's naturally the fear that this could be a trap. We've seen this happen before. Netflix got several of the leading Blu-ray player manufacturers to include Netflix buttons on their remotes. Why not? Streaming used to be a freebie tacked on to disc-based subscribers. If folks were renting optical discs, they were going to need Blu-ray and DVD players, and they chose to be responsive. Well, Netflix then went on to start charging for streaming as a stand-alone service two years ago, leaving disc-based players with that Netflix button that sidestepped DVDs and Blu-rays altogether. Netflix could be pulling a fast one here if it waits until it nabs enough set-top box deals to being selling piecemeal rentals of first-release titles, eating into their own pay-per-view and on-demand offerings.
However, given the sluggish nature of growth for pay-TV providers, it's a gamble that they may have no choice but to make. Comcast (CMCSA +0.32%) is singled out by name in the article, and the country's largest cable provider has plenty to lose. If folks cut the cord, they often decide to also nix Comcast's lucrative broadband and broadband telephone offerings. Comcast's video customers have declined from 22.1 million to 21.8 million over the past year, yet its broadband and voice offerings are growing as Comcast's bundles the three offerings together. If greater numbers of TV watchers cancel cable in favor of HD antennas and Netflix, the entire empire can begun crumbling down.
Working with Netflix now is better than dealing with Netflix later, even if striking a pact to get Netflix's streaming functionality will open up a can of worms.
It's too late to stop Netflix, and the cable and satellite companies that try to get in the way of that stream engine will be dead on the tracks.
