Just when you think the final story has been written about Netflix — the story begins again.
The high-flying video subscription service, largely credited with driving Blockbuster into bankruptcy, has had business issues of its own in the past year. Now it's looking to a new partner — cable operators — who traditionally view streaming in general, and Netflix in particular, as the enemy.
Last September, for example, Netflix kissed its agreement with Starz goodbye, which put a dent in the ability of Netflix to gain access to recent movies. Then in October, Netflix was forced to abandon its strategy to divide and conquer. The company had announced an increase in its prices while launching a DVD-only subscription service called Qwikster that would be unbundled from its streaming service. But the outcry from customers and the industry alike was nothing short of venomous, so Netflix backtracked and quickly killed Qwikster.
The resulting damage to a previously stellar brand was palpable. Netflix began to lose subscribers by the truckload and it took a hefty hit to its revenue. Pundits questioned its ability to survive the battering. Netflix has since rebounded somewhat, and now it seems to be pursuing a route that is pushing the service more towards television shows than movies.
As for the DVD business, it does seem to be dying out. Recent statistics suggest that Netflix users are heavily oriented towards streaming, with a 72 percent increase in streaming from Q4 2010 to Q4 2011. Also significant is the fact that subscribers are trending to television shows — streamed TV shows increased 10 percent while streamed movies fell 6 percent in the same time period.
Now come word (via Reuters) that Netflix is in talks with cable companies with the objective of becoming a streaming service — in essence, a subscription Netflix channel designed for broadband, not unlike HBO Go. Netflix CEO Reed Hastings said at a recent investor conference that "Many [cable service providers] would like to have a competitor to HBO, and they would bid us off of HBO." Still, Hastings called the possibility a long-term prospect. But why, then, is he already meeting with cable execs?
One reason could be that the window of opportunity for Netflix to align with cable companies is closing. Comcast, the largest cable operator in the U.S., has just launched Streampix, its own video streaming service, via its Xfinity service. Verizon is hooking up with Redbox to launch a video streaming/DVD subscription service later this year that would compete directly with Netflix. This new competitor could give Netflix even more of an incentive to move in the direction of cable television.
While cable operators like Time Warner's TV Everywhere-touting CEO Jeff Bewkes previously saw Netflix as a direct threat, their views might be changing, according to Reuters: "More recently, however, Bewkes and other media chiefs, including Viacom's Philippe Dauman, have been much more positive about Netflix, in part because the service has boosted their coffers by licensing older shows."
If Netflix could transition its subscriber base to cable, and attract new subscribers to a premium service, that could mean more revenue for cable operators including Comcast to woo cord-cutters back to the fold, and forge a new path to long-term survival for Netflix. It could be a win-win for strange bedfellows, who may find themselves snuggled up, streaming (and dreaming) of new revenue opportunities together.