Cable Operators and Netflix Should At Least Date

There has always been the chance Netflix would prove to be a house of cards. Consumers welcome its easy-to-use navigation and ability to recommend other interesting content, but if those are its most attractive features, it bears wondering if it is just in the hardware business when content is the marketplace driver?

As usual, Time Warner Cable CEO Glenn Britt was ahead of the pack when he raised that prospect not long ago. Sure it has a "wonderful interface," he said, but Netflix might need more to stop a well-funded, aggressive competitor.

Now, if trouble circles, Britt and his fellow top executives at cable companies might be able to help, while Netflix could assist them. Cablevision's COO Tom Rutledge hinted about the mutual benefits of a partnership this week.

Cable giants may still believe a small group will embrace over-the-top delivery of content, but now seem to believe it is critical to find a place in the space. So, why not work with the Warren Buffett of the realm to plant a flag?



In the end, there may be too many issues to bring a marriage, but operators and Netflix should at least start casual dating.

For now, Netflix would seem to have a major incumbency advantage over challengers with its huge subscriber base. Then again, MySpace offers a cautionary tale. Faced with questions about whether it would continue to thrive, News Corp. executive Peter Chernin argued it would be hard for huge groups to go elsewhere en masse. Everyone's friends couldn't all leave at once, so everyone would stay -- maybe they'd do Facebook as well, but not exclusively.

Netflix has had a miserable couple of days. Its recent price increases look to be costing it customers and its stock price has plummeted. 

But this apparently isn't new Coke. Netflix isn't hinting it will abandon ship and roll back prices. Netflix has a smart management team, so Wall Street should come around.

Knowing it needs top-tier content, it has spent handsomely to acquire streaming rights to "Mad Men" and has commissioned an original series with Kevin Spacey called, well, "House of Cards." CBS CEO Leslie Moonves also said this week that a CBS deal allows Netflix to stream shows not long after they go off the air.

Yet, if a Hulu or Amazon begin to significantly cut into market share, Netflix should consider working with the eager cable companies, DirecTV, AT&T and Verizon. (Dish now owns Blockbuster and could show the potential.)

Cable operators might pay Netflix nicely for rights to offer the service via video on demand. That could give Netflix a presence in millions more homes, while making it easier for its customers to use it on a big screen and pay for it as part of the cable bill.

"I'd love to sell Netflix as a pay service on my cable system, why not?" Cablevision's Rutledge said Thursday.

Cable operators might also be able to use Netflix to attract higher-paying Internet customers for the over-the-toppers who only want broadband. Sony and Panasonic already offer Netflix access through Internet-connected TVs, so cable operators should already be wary of that as those sets proliferate. 

Netflix, of course, has been considered a threat to cable companies as a cord-cutting greaser. Regardless of whether the two sides get together, Rutledge indicated there is one potential benefit from over-the-topping: lower costs. Networks are charging more and more for carriage rights, but if people increasingly drop TV service, he said that "could have a moderating effect on costs."

He did say he's "not sure how it goes" and that is pretty doubtful, but it hits on how much impact Netflix has up and down the industry now and ahead. It's gone from the mailbox to the luxury box. 

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