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Could Apple and Comcast Challenge Netflix With This Potential Move?

By Andrew Tonner – Mar 25, 2014 at 8:30PM

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As Apple and Comcast contemplate a potential partnership, what could the implications be for streaming companies like Netflix?

It's full-steam ahead for giants like Apple (AAPL 1.98%) and Google in the next phase of their race to help create -- and then cash-in on -- the next major trend in consumer tech.

Exactly what the "next big thing" will be in tech is one of the most hotly debated topics out there. Recently, I argued that the global smart-watch market will be the next major industry to undergo a major technological renaissance.

Undoubtedly, there are still those that'll look dubiously on my opinion. And in those instances, many will argue instead that the global TV market is perhaps more ripe for reinvention. And to be sure, infusing the TV viewing experience with software more closely resembling that of today's tablets or smartphones would represent a drastically improved consumer experience. Now, there are also some rather unfortunate economic realities that could make this possible paradigm harder than many realize to get off the ground, at least as many envisioned it.

Source: Apple

But recent reports highlighting talks between Apple and cable behemoth Comcast (CMCSA 1.37%) showed that Apple's smart TV ambitions might still be alive and well, albeit in slightly different form than many originally envisioned.

Taking Apple TV to the next level
According to reports from a number of sources, Apple and Comcast are fast at work discussing a possible partnership that would help push the cable industry toward the more user-friendly interface for which many have long clamored.

Apparently, these talks remain in their early phases, and given all entrenched factions and preexisting vested interests that drive the current structure of the global TV market, there's still plenty that could derail an Apple-Comcast deal. In terms of its exact mechanics, it appears the service would involve Apple creating some kind of advanced TV service that would flow through Apple's already available Apple TV set-top boxes and be distributed to Comcast subscribers over Comcast's own cable-network infrastructure.

This deal could certainly prove mutually beneficial for both companies. For Apple, it would access a possible new growth driver as the global smartphone and tablet markets slowly inch toward maturity. In turn, Comcast also stands to benefit from integrating a company with Apple's deep mobile expertise. Falling cable subscriptions have operators like Comcast fearing that the rise of viable streaming alternatives like Netflix (NFLX 2.63%) could lead to cord cutting becoming a more widespread trend than it already is, especially among millennials. 

Could Apple's new network be a Netflix killer?
There's also another angle at work with Apple's potential Comcast deal that could hold some negative implications for the likes of Netflix as well.

Partnering with a cable operator like Comcast would allow Apple to deploy its new service across Comcast's cable network, rather than over the Internet as streaming companies like Netflix and Hulu do today. This could give Apple's new service a potential leg up in terms of delivery quality over these streaming companies. As we've seen with the recent FCC ruling's on net neutrality, Internet-based services like Netflix now must pay to ensure their data-intensive services receive enough bandwidth to maintain satisfactory quality. By delivering its service over Comcast's cable network instead, Apple would be able to largely skirt the issue of delivery quality by effectively making its service on par with Comcast's current on-demand viewing options.

By all accounts, this story line is still in its infancy and there's plenty that could go wrong. But with Comcast and Apple each addressing growing needs by joining forces, the potential for these two companies to create a service to be reckoned with makes this a must-watch story for anyone interested in investing in this space.

Andrew Tonner owns shares of Apple. The Motley Fool recommends Apple, Google, and Netflix. The Motley Fool owns shares of Apple, Google, and Netflix. 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.

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