Comcast Could Soon Become One of Netflix's Biggest Allies
Even in the wake of their peering agreement, Netflix and Comcast continue to bicker. In its earnings release on Monday, Netflix slammed the cable giant's proposed merger, arguing that it was anticompetitive. Comcast responded almost immediately, asserting that Netflix's claims were not "factually based." Although they may not be direct competitors, the conflict is understandable, as Netflix depends on Comcast's broadband service to reach its subscribers.
Yet Comcast, and other cable giants, might soon emerge as Netflix's biggest ally, playing a key role in helping Netflix achieve its long-term subscriber goals.
Expanding access to Netflix
In recent quarters, Netflix has made a habit of drawing investors' attention toward the growing number of smart TVs, set-top boxes, and other Internet-connected devices that make it easy to watch Netflix on the big screen. In its most recent earnings release, Netflix was explicit in stating that the newly released Fire TV would soon include support for Netflix voice search.
That may seem like a minor detail, but it's important when viewed in the context of Netflix's lofty goals. As of the end of the quarter, Netflix had more than 35 million U.S. subscribers -- an impressive figure, but far less than the 60 million-90 million Netflix is aiming for. Given its aggressive valuation (trading with a price-to-earnings ratio of nearly 200), Netflix will need to continue to grow its subscriber base in the months and years ahead to satisfy investors.
The easiest way to accomplish that would be to make Netflix more accessible. Last year, a Nielsen survey found that the PC was still the preferred method for streaming Netflix content -- Internet-connected TVs, video-game consoles, and Blu-ray players were decidedly less popular; in fact, mobile phones were more popular with Netflix subscribers than all other Internet-TV solutions.
Set-top boxes are the true threat to cable
It should be obvious that watching video content on a TV is superior to watching it on a PC, sitting at a desk, or staring at a relatively tiny screen on a smartphone or tablet, but if you need hard data, consider the results of a recent survey from Experian Marketing Services (via Business Insider).
According to a survey of 24,000 U.S. adults, households with a Netflix or Hulu subscription that used the service on an Internet-connected television were more than three times more likely not to subscribe to cable than those without a Netflix or Hulu account. If the household in question had a Netflix or Hulu account but didn't use it on an Internet-connected TV, they were only 1.5 times more likely not to have cable.
In other words, if you have a Netflix account, and you have an Internet-connected set-top box like the Fire TV or the Roku, you're much more likely to be a cord-cutter. By extension, you're probably much more likely to depend on, and enjoy, your Netflix subscription.
Netflix has a powerful argument to make to the cable companies
But not everyone has an Internet-connect set-top box (the market remains surprisingly small), nor do they understand the often confusing process of switching between TV inputs. In order to get more subscribers, Netflix may need the cable companies.
Netflix has been working to add its service to some of the next-generation set-top boxes offered by the major cable companies. It has seen some success in Europe but none so far in the U.S., though Netflix's management promised to begin the rollout process later this year.
Comcast's new set-top box, the cloud-based X1 platform, allows subscribers to access a number of Internet apps -- Netflix would be an obvious fit. Given the rivalry between the companies, Comcast may be loath to do such a deal, but according to Netflix it may be in Comcast's best interest. In its earnings release, Netflix's management notes:
From [the cable company's] point-of-view, they would rather have consumers use Netflix through the [cable] box and remote control than have consumers become accustomed to watching video from a smart TV or Internet TV device remote control.
Will Comcast relent?
Comcast may balk at such an argument, but the data appears to support such notions -- if Comcast keeps Netflix off its set-top boxes, its subscribers are incentivized to purchase and use devices like the Roku or the Fire TV, in turn making them more likely to ditch cable.
Will Comcast add Netflix to its set-top boxes? While it remains to be seen, The Wall Street Journal reported last year that Comcast was coming around to such an idea. With Netflix explicit in its intentions to pursue such deals, Comcast -- and other cable giants -- could provide the crucial next step in continuing Netflix's rapid growth.
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The article Comcast Could Soon Become One of Netflix's Biggest Allies originally appeared on Fool.com.Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. 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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