Hot on a run of reporting about online-video rumors, the Wall Street Journal is now reporting that Netflix and cable companies — most notably the nation's biggest provider, Comcast — are negotiating to add the streaming service as an app on cable boxes.
At first, this may seem counterintuitive: Why would a cable company encourage online video? But if it's tied to cable service, the cable (or satellite) provider would be partnering with, not yielding to, the streaming video powerhouse. "They're not really competitors. [Most] Netflix subscribers have cable or satellite," said Jeremy Toeman, CEO of online TV listings service Dijit Media. Plus, Netflix had negotiated very good deals with TV and movie studios that cable companies might want to take advantage of by partnering with Netflix.
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"There's a certain number of consumers that don't want to have [separate] billing relationships for television," said John Buffone, an analyst who covers video devices for research firm NPD. "And they also want that channel to be available in the manner in which they've selected TV channels in the past."
In other words, there's no downside for a cable company to add a service that people want. Consumers clearly want streaming video — in particular, Netflix — so providing that could be a competitive advantage for a cable provider like Comcast, said Buffone. Data from NPD shows that 49 percent of households with a TV connected to the Internet subscribe to Netflix Instant, making it the most popular streaming service. And a July survey by AltmanVilandrie found that 76 percent of people who watch video online watch Netflix, versus approximately one-third who watch HBO Go, Hulu or Amazon Prime.
Those high numbers also hint at what could happen to other online video services and set-top makers if cable companies embrace Netflix. For many people, online video equals Netflix. The first successful streaming set-top box, Roku, began as a Netflix spinoff that delivered only Netflix Instant. Roku now offers dozens of additional online services (or "channels," in Roku parlance), but Netflix remains the most popular. And Apple, which usually tries hard to push people to its own iTunes store, decided it had to offer Netflix on its Apple TV when it debuted. (Apple has since let in other services, such as Hulu.)
If Netflix, the killer app of online video, comes bundled with cable, how likely are people to go out and buy another HDMI-connected box to get Hulu, Amazon and other services?
Furthermore, if Netflix succeeds with a cable deal, what's to stop Hulu and others from negotiating similar deals?
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In other words, who needs a Roku or Apple TV? Even people who don't subscribe to cable or don't get the latest cable boxes have a way to get streaming video on their TVs — it's called game consoles. NPD's data shows that the Xbox 360 and PlayStation 3 are already the most popular ways, by far, for getting Netflix and other streaming services to the TV. They far outstrip Roku and Apple TV. The Xbox even offers Time Warner cable as a "channel."
In the near future, Apple TV and Roku might be seen as transition products, like the external modems that PCs once used to get on the Internet. (Now, there aren't even integrated modems, and increasingly, PCs offer just Wi-Fi.)
That could be just fine for Roku, which isn't wedded to making boxes, anyway, and is looking toward integrating its software into other devices. "The next step for us is absolutely integration, full integration," Lloyd Klarke, Roku's director of product management, told Tom's Guide in a recent interview.
"The opportunity to sell a streaming Internet box into a home is shrinking," said Toeman, as the market is getting saturated. "If I was Roku I too would want to be getting myself into products. (Toeman, however, is skeptical about the chances of Roku getting its software into cable boxes.)
That move would also beat the long-suffering Google TV (likely to be renamed Android TV) at its own game. The service has struggled for years to provide a universal search function on TVs, but it's piled on so many other screens and features, plus numerous service glitches, that it's failed to take off or get integrated into many smart TVs.
A Netflix/cable TV/Roku deal, or even just a Netflix/cable TV deal, could scuttle the wishful thinking of pundits who have for years been talking about how Apple would reinvent TV. Why wait for Apple when the companies that already control the content people want to watch can get together to reinvent TV on their own?
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