http://www.barrons.com/articles/is-a-wedding-in-comcast-and-netflixs-future-1478322097
Technology Trader
Is a Wedding in Comcast and Netflix's Future?
Alexander Eule
Photo: Bloomberg News
For years, Comcast and Netflix have been a symbol of digital disruption: old versus new. East Coast versus West Coast. Big payments versus small ones. And all-in-one versus a la carte. In the world of corporate rivalries, it's hard to do better than Netflix and Comcast.
The long battle was the basis of a Barron's cover story three years ago ("Don't Touch That Dial," Aug. 5, 2013). At the time, Netflix (ticker: NFLX) talked about how the world of "linear TV" was coming to an end, how the future was online. Comcast (CMSCA), meanwhile, was sticking by the old cable bundle and touting its ability to innovate.
Somehow both companies have thrived, but the bickering never stopped. In 2014, Netflix was the most outspoken opponent of Comcast's attempt to buy Time Warner Cable. Comcast eventually dropped the bid. Then last month, in what seemed like rubbing salt in the wound, Netflix CEO Reed Hastings offered his support for the megamerger between AT&T (T) and Time Warner (TWX). You could almost hear the sound of Comcast execs gnashing their teeth.
But back-channel talks have softened the divide. Since September, the companies' engineers have been rolling out a joint beta test that allows Netflix to stream content directly to Comcast's X1 cable boxes. The official détente arrived on Friday, when the companies announced the public rollout of Netflix on X1, starting this week. In a joint statement, Comcast called Netflix a "terrific partner."
So what does the agreement actually mean? For one, it solves the first-world problem of switching inputs on the big-screen TV. Netflix will flow right into the cable box. The agreement applies to the overlap between Comcast's 22 million TV customers and Netflix's 47 million U.S. streaming subscribers. But the deal means that other cable providers will probably have to respond with their own agreements.
WHY WOULD NETFLIX, the disrupter, partner with the icon of the pay-TV establishment? And why would Comcast willingly invite Netflix into its subscribers' living rooms?
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Netflix is no longer the start-up but the legacy streaming player that's under threat on multiple fronts. The company's latest earnings report was strong, but it's facing increasing competition from rivals like Amazon.com (AMZN) and Hulu, which are producing quality streaming content of their own. And then there's HBO and Showtime, which now offer streaming packages directly to consumers. A Comcast partnership could help Netflix recruit some of the Comcast subscribers it doesn't already have.
Comcast, meanwhile, is doing whatever is necessary to keep its cable bundle together. The company needs to make convenience a big part of its offer, now that cord cutters can piece together their own cable package through multiple vendors like Sling TV, HBO, and Hulu. Going forward, Comcast's best selling point is: all of your content, all on one box.
For those reading between the lines of the Comcast/Netflix announcement, it's enough to wonder if the companies are talking about more than just a cable-box partnership. AT&T's $85 billion deal for Time Warner has shaken up the media world, and the industry is scrambling to respond. Goldman Sachs has reportedly pushed Apple (AAPL) to make a rival offer for Time Warner. A deal between CBS (CBS) and Viacom (VIAB) seems likely.
So what's Comcast to do? Some analysts have suggested a purchase of T-Mobile US (TMUS) to help Comcast counter the suddenly TV-centric AT&T. But Comcast has a preference for entertainment. It tried to buy Walt Disney (DIS) in 2004 before settling on NBCUniversal a few years later. That has been a rare success story among big media mergers. If Comcast execs are feeling antsy, a few of their colleagues already have Netflix on speed dial.
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Comcast and netflix make nice. is a wedding in their future?
For years, Comcast and Netflix have been a symbol of digital disruption: old versus new.