Netflix, Coming Soon to the Cable TV Box?

According to BusinessWeek.com, Cable companies are toying with the idea of having Netflix, one of their major competitors, make its video streaming service available through their cable boxes. The online streaming king already made similar deals with a UK cable provider, Virgin, to offer its video streaming in their TiVo boxes.

The article states that “Netflix is arguably the biggest reason why people feel inspired to cancel their cable subscriptions” So why should cable companies welcome Netflix? The integration of Netflix on cable boxes seems like a threat, but it is also an opportunity for the cable companies. According to the article, If cable companies incorporate Netflix on their cable boxes, the cable companies can charge the user a mark-up on the Netfix service or the cable companies can charge a usage fee for how much the user is online (i.e the Netflix streaming). Either way it would be win-win situation for Netflix and the cable companies.


Dave Tufte said...

Emma182: 100/100

Companies blunder sometimes. You really have to wonder why, when Roku came out with a box that could bypass cable boxes to access Netflix, that the cable companies didn't figure out that there was an opportunity.

Having said that, cable companies are pretty savvy users of bundling (see Chapter 9 in the text). So I think it's still a pretty good idea for them to incorporate Netflix.

10-S Pro said...

I agree that cable companies should incorporate Netflix. It would be a good move for them to get back in the game. Netflix and others are becoming increasingly popular because of the variety that they offer that cable does not.

Dave Tufte said...

10-S Pro: 50/50

I'm not sure what relevance "... get back in the game ..." actually has. I don't think cable companies and Netflix have ever been in the same game.

Cable companies "game" is to deliver a flow of services, at a mark-up, down the cable whose costs have been amortized over many years. If you have a service they can charge a mark-up on, you can be bundled too.

But, Netflix is in the business of delivering a wide variety of content created by others. Their "game" is to figure out cheaper ways to deliver that content without bottlenecks.

I think the overlap there is between the VOD channels offered by cable companies, and Netflix streaming services.

Mike said...

In my personal experience Netflix and cable are compliments rather than substitutes. Netflix only offers backdated seasons of television series; if a user would like to view the current season, they must tune into the network. For example I started watching The Walking Dead seasons 1-3 on Netflix but to see the new season I used my cable box to access AMC.

Dave Tufte said...

Mike: 47/50 (complement, not compliment).

I think you're right, but economically I'm not sure what to make of this. There's definitely an interesting dynamic between Netflix and cable.

Having said that, I'm not sure how far we can go forward with your particular example. Couldn't someone still do this if Netflix streamed through a channel on your cable box?

Vader said...

There are a couple of ideas I would like to add to this discussion.

First of all, I do not agree that Netflix needs to be incorporated into the cable companies. I think the niche that they have created for themselves in the market is fantastic and is evident by the demand of its consumers, its earnings and its stock price. I personally have not paid for cable for several years. I do pay for a Netflix subscription and watch all my other programming online for free via a tablet or laptop. Granted, I am one of those consumers who is definitely price driven and I don’t mind waiting a week to watch the latest show.

Second of all, it seems to me that demand for traditional cable boxes is decreasing. Instead, we are seeing an increase in the demand for alternative and cheaper ways of watching our programming. For example, all four major networks, CBS, NBC, ABC and FOX, now offer programming online and via an app. It took CBS a while to get on board but just that fact that they did demonstrates this demand. Consumers are dropping cable packages because their local programming is available via tablets, Wi-Fi televisions and computers. In fact, the local cable company just reorganized their packages and moved some of their channels in the least expensive package to a more expensive package. These channels are not channels you can necessarily get online. If I were involved in the direction that Netflix takes, I would be looking for ways to include that programming as a part of my service. Basically, I would be looking for ways to make Netflix a substitute instead of a complement to traditional cable.

Dave Tufte said...

Vader: 50/50

Interesting. Don't you think that Netflix started out as a substitute for cable (or at least premium cable)? If so, why would they evolve back in that direction?

Ryan Horlacher said...

I don't have cable, so I may not be an expert, but I don't see much opportunity for cable companies to bundle Netflix and charge a premium on the service. It used to be that Roku could cost as much as $300 dollars and they were difficult to find. Apple TV came out and started at $99. Now Google has released their Chrome Cast at $35. The ease with which consumers can now stream just about anything to their TV with their tablet, laptop or phone is incredible. I doubt that many would be willing to pay a monthly fee when there are so many cheap alternatives.

A related but slightly different point is this: The only true advantage that I see in paying a large monthly fee for cable is live programming. Sports, talk shows and news are examples of this. Nearly everything else is available very cheaply via Netflix or Hulu. Many consumers desire both the live feed and the on demand nature of Netflix. So in this way the two goods are complements. However, by including Netflix, cable companies may help some users to realize that the on demand portion is all they need.

Dave Tufte said...

Ryan Horlacher: 50/50

I'll give you two reasons why people would still have cable. One is inertia: it's just too much hassle to switch. Don't underestimate the willingness of consumers to think that way. The second is that there are people like my family — comfortably upper middle class and used to that standard — who decide that streaming is a complement to the cable they already have, rather than a substitute.

Judy said...

First of all, Netflix and cable companies can face the technological barrier because to watch Netflix on TVs consumer needs internet-connected TV or an add-on setup box that can connects them to the internet, like an Xbox360 or Apple TV. It sound good to hear that Netflix availability on same input would make is easy for existing customer who has this technology and make it more attractive to new customer who watch TV mostly on their regular set-top Boxes but those consumer who has no access or ability to purchase these new technology then Netflix has no impact on their perception. Due to this affect normally subscribers of Cable TV would prefer to cancel their cable subscription rather to pay extra money.
Beside the mark-up charge or usage fee for how much the user online stream, benefits to Cable companies less clear then Netflix. There is also a risk that Netflix would compete with operators offering directly like pay-per-view movies, video on demand. But Netflix already gives all these features to customers.
Second, this integration of Netflix can have heavy burden on customer budget. Cable companies already try to draw last penny out of subscribers. If Netflix will be available to all cable users or only “premium” subscribers those already pay big amount for cable TV packages.
Third, the Netflix and cable merger can also create the mash-up raises the question that would cable companies provides Netflix traffic or not on their boxes? For example, Time Warner and Comcast provide service on their respective Xbox 360 and they don’t count video streamed through the Xbox360. Besides all of the above discussion it would be a good combination for the users and the service providers because both cable and Netflix will be earning revenue and on the other end Netflix will be available easily to a common user.

Dave Tufte said...

Judy: 35/50 (too many mistakes to list them all here).

I think you raise some good points, but I'm not sure what your conclusion is. Are you saying that you're not sure this will go through because there are 1) technological barriers, 2) uncertain gains for cable companies, and 3) problems with pricing all the Netflix streaming that might go through alternative devices?