Netflix reportedly in talks with cable providers to be a set-top app

While there are still multiple details to work out, Netflix (Nasdaq: NFLX) could go from over-the-top to into-the-box if a reported deal with cable operators, including Comcast (Nasdaq: CMCSA) and Suddenlink, comes to fruition.

The Wall Street Journal reported that the parties are in talks that would result in Netflix becoming an app on cable TV set-top boxes such as Comcast's IP-enabled Xfinity platform rather than an outside-the-box service that subscribers must search to find using connected devices such as smart TVs, Blu-ray players or non-cable set-top boxes.

Somewhat surprisingly, the enhanced relationship between the apparent competitors is being gummed by Netflix's insistence on using its Open Connect streaming program to improve delivery of its service, which has recently expanded to include Ultra HD features.

The two named MSOs, the story said, are wary about using something that carriers including Comcast, Time Warner Cable (NYSE: TWC), AT&T (NYSE: T) and Verizon (NYSE: VZ) have declined to adopt. The other concern is that giving Netflix special streaming consideration could lead other OTT content providers to ask for their own methods as well. And besides, the service providers have maintained, their own networks are capable of delivering Netflix without any enhancements.

A deal between the cable operators and Netflix, on the surface at least, makes sense. At present, Netflix is generally considered an interloping competitor that draws away video subscribers who continue to use cable broadband pipes to buy pay TV services that are not part of their service provider packages. Using the new IP capabilities of cable networks and set-top boxes would make Netflix--with both original programming and classic TV offerings--just another programming option and, the theory goes, keep those subscribers in the pay TV fold.

On the negative side, operators are wary that Netflix might go beyond its limits and start offering more competitive programming such as pay-per-view that competes directly with cable services.

Netflix has, at least in the last half-year or so, been publicly in favor of improving its relationship with cable operators. Last month, Liberty Global's (Nasdaq: LBTYA) Virgin Media made Netflix an app on its TiVo (Nasdaq: TIVO) platform, effectively making the over-the-top content provider a part of its set-top based pay TV service rather than a competitor.

In addition, Netflix CFO David Wells used a recent investor conference to extend a peace offering to pay TV providers by stating the provider would "love to reduce the friction to the end consumer" via availability on cable set-tops, the Journal story said.

For more:
- the Wall Street Journal carried this story (sub. req.)

Commentary: To combine OTT and IPTV, a managed network's the answer

Related articles:
Malone: No reason Xfinity or Hulu can't be syndicated
Netflix expands Super HD content to all subscribers
Virgin Media adding Netflix to TiVo platform

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