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Cable Technology Feature Article

December 10, 2013

Time Warner 'Open' to Hooking Up with Netflix

By Tara Seals, TMCnet Contributor

Time Warner (News - Alert) Cable (TWC) wouldn’t necessarily say no to adding Netflix to its content bouquet, according to its incoming CEO. If implemented, it’s a move that would shatter the existing competitive landscape.

When asked about serving up Netflix via its set-top boxes, Rob Marcus, who will take the helm at TWC in January, said at the UBS Global Media & Communications Conference in New York that “we’re certainly open to it.”

He stopped there, noting that TWC is typically available alongside Netflix on connected devices like smartphones thanks to its existing TV Everywhere strategy—implying there could be some redundancy in a tie-up. But, the possibility is still there.

Netflix is available in the U.K. via Virgin Media’s TiVo (News - Alert)-enabled STBs, but that’s the only pay-TV deal the streaming giant has cut to date. It has been vocal in its interest in partnering with cable, satellite and IPTV, looking to be bundled with TV service as a premium network akin to Showtime or HBO. According to the Wall Street Journal, Netflix is in active but informal talks with Comcast (News - Alert) to do just that.

“Data suggests that cord cutting has gained some momentum in recent years, and it makes sense for the pay-TV service providers to partner with Netflix and others alike, in order to stall this decline,” analysts for Trefis noted in an report on Seeking Alpha. “In turn, Netflix will get much wider distribution and visibility…it also indicates the blurring of boundaries between the traditional and modern video consumption models.”

According to Sanford C. Bernstein, U.S. pay-TV companies lost 400,000 net subscribers in Q2 2012, and the loss stood at 113,000 for the third quarter of 2013. During the third quarter of 2013, Time Warner Cable alone lost 306,000 residential video subscribers, largely the result of the blackout of CBS channels from its lineup in August. It’s also a prime takeover target, with both Charter Communications and Comcast eyeing a potential acquisition of the No. 2 cable MSO. Adding viewer perks like seamless access to Netflix from within the TWC middleware could give it a much-needed shot in the arm with consumers.

“Although the satellite and phone companies are gaining customers, they aren’t able to offset the losses suffered by the cable operators,” Trefis said. “The market is saturated and may decline going forward. Even in the quarters when the industry grew, the growth was lower than that for the number of households, an indication that cord-cutting is still going on.”

As Marcus noted, traditional pay-TV companies have been offering their own streaming services via TV Everywhere initiatives, where subscribers can use their pay-TV credentials to sign in and access their subscription content on connected devices—but the take-up has not been significant.

In fact, it’s been nearly five years since Comcast and TWC first introduced the TV Everywhere (TVE) initiative, yet only 6 percent of adult Internet users in the US are viewing online video from a pay-TV operator's website, according to MRG Research.

"Pay-TV operators have invested many millions to build the network infrastructure and acquire content licenses to support the online viewing of live and on-demand TV programming on PCs, tablets and smartphones," noted MRG. "They have launched commercial TVE services, such as Comcast's Xfinity Online, DirecTV (News - Alert) Everywhere and AT&T U-verse Online. Yet, TV Everywhere has been criticized for poor consumer awareness, being confusing and lacking content. "

It also said that TVE should be integrated with the multi-functional pay-TV companion apps that many service providers are launching. For example, the Cox Contour iPad app supports live and on-demand TV viewing on a tablet, as well as access to VOD, TV navigation, electronic program guides, personalized TV recommendations and DVR control/playback.

"The pay-TV operator's objective should be to dominate the user-interface to the next-generation TV experience," the firm said. "In doing so, TVE adoption will follow."

But why re-invent the wheel? Pay TV operators could instead partner with an existing provider that specializes in the digital distribution model—and in Netflix’ case, it’s one that brings its own 31.1-million strong installed base with it.

Netflix is not alone in its quest to partner with pay-TV. Hulu is reportedly talking to Comcast, TWC, Cox Communications, AT&T (News - Alert) and Verizon Communications about the possibility of adding Hulu Plus to the TV bundle.  It is also talking to AT&T about being bundled with its broadband service.

Edited by Blaise McNamee

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