Netflix: Easy as changing the channel
The television two-step is familiar to nearly every household with a TV set and a Netflix subscription. To watch cable, the television must be on one setting; to browse Netflix, it has to be on another. For some family members, toggling between the two is easy; for others, it's so befuddling that it discourages any straying from cable at all.
Now, in a sign of on-demand TV's popularity, some cable companies, including Comcast, Charter Communications and Cox Communications, are talking with Netflix about doing away with the two-step and making the subscription service - and other online video services - available through the set-top boxes that most Americans have in their living rooms.
For the providers, the discussions are part of a broader shift toward the Internet-powered delivery of television. But they also exemplify how the Comcasts of the world are gradually accepting, if not altogether embracing, Netflix, even as the cable pioneer John Malone continues to recommend that the cable industry create a Netflix rival.
Netflix's stock approached a record high and closed up almost 8 percent on Monday after The Wall Street Journal reported on the talks with Comcast, the nation's largest cable provider, and Suddenlink. Comcast's stock was up only slightly.
Separately on Monday, Netflix, which a year ago had not even premiered its acclaimed series "House of Cards" or "Orange Is the New Black" yet, gained attention for its first production pact involving an original series with a major Hollywood studio. The studio, Sony Pictures Television, will supply Netflix with an as-yet-untitled psychological thriller from three men who previously created "Damages" for FX.
For the not-so-tech-savvy, a cable channel like Showtime is still easier to watch than Netflix, but a Netflix button on Comcast or Time Warner Cable's on-screen guide could change that. Competitive fears, technological hurdles and a thicket of contracts could have stopped it from happening in the past, and could still scuttle the idea now.
Many of Netflix's roughly 30 million streaming subscribers in the United States have hooked their TV sets up to the Internet with devices sold by Apple, Roku, and other companies. When the newest such device, Google's Chromecast, was put on sale in June, it was bundled with three free months of Netflix service - but that promotion ended after just one day because of what Google called "overwhelming demand."
Amazon will soon enter the fray with its own Internet TV device. Although Amazon operates a rival streaming service, called Amazon Prime Instant Video, Netflix will be available through the device, according to a person with direct knowledge of Amazon's plans.
Netflix, for its part, has wanted to be on set-top boxes for almost as long as it has had a streaming video service.
The company is expected to show a gain of about 1 million U.S. subscribers when it releases its third-quarter earnings on Oct. 21. For the company to reach its publicly stated goal of having 60 million to 90 million domestic subscribers someday, it will help to be available on every imaginable Internet-connected screen and device.
"Having the Netflix app on a set-top box is a natural progression," Jonathan Friedland, Netflix's chief communications officer, said in an email Monday. "Our goal is to make it as simple as possible for consumers to enjoy Netflix while cable operators see value, too, because it makes their broadband service more attractive."
Some cable giants (like Time Warner Cable) see themselves primarily as broadband, not television, providers. Cablevision already promotes itself as having "the highest-quality Netflix experience," and in the future it and others could bundle Netflix with faster, higher-priced broadband service.
But Netflix's preferred way to deliver its video streams, through a server system it calls Open Connect, is a severe point of contention and a sticking point in the current discussions. While Cablevision and Cox's networks are tied into Netflix's servers this way, most other American providers have rejected the system.
Representatives of several providers acknowledged that they continue to view Netflix warily. Even though long-held fears that the streaming service would cause cable and satellite subscribers to cancel en masse have not come to pass, the service remains a threat to the existing ecosystem.
Some channel owners may also balk at Netflix's having a spot on set-top boxes because of the inherent competition between scheduled and on-demand shows, said Michael Nathanson, a senior analyst at the newly formed research firm MoffettNathanson.
But that competition will increasingly play out on TV sets as cable providers upgrade their technology and give subscribers newer, Internet-powered set-top boxes.
"We are rapidly moving toward an environment where every device in the home, including the big TV, is connected to the Internet," said Alex Dudley, a spokesman for Charter, a cable company with 5.5 million subscribers.
Hinting at a potential integration of Netflix, he added, "Charter is open to the myriad possibilities that could enhance the customer experience using that technology."