The Cable Box

Netflix Finally Breaks Into the Cable Box. Why Does That Matter?


Netflix’s series House of Cards

Photograph by Patrick Harbron/Netflix via Everett Collection

Netflix’s series House of Cards

Netflix (NFLX) is now on Channel 450, 750, and 879. The video service will be available as just another channel on the cable box for three smaller cable operators, part of a long-term effort to reduce the “friction” a viewer encounters when he or she surfs from a cable TV channel to Internet video.

The deal announced today will make Netflix available on TiVo (TIVO) set-top boxes leased to customers by Atlantic Broadband, RCN Telecom Services, and Grande Communications. The idea is that Netflix will appear seamlessly when browsing channels, the same as moving from ESPN (DIS) to CBS (CBS) to the Weather Channel without requiring users to switch inputs or remote controls—though it’s still available only to viewers who subscribe. “It puts Internet television at par with regular television, and ultimately that’s where we think it will go,” says Joris Evers, a Netflix spokesman. “It reduces friction when they want to watch Netflix.”

It also is likely to reduce customer defections, the regular churn subscriber services face as introductory promotional offers expire and people drop the service, displeased by the monthly bill or unenthused by the offerings. Having Netflix become just another channel may increase how much people watch and stands to help both Netflix and the cable firms retain customers.

“The two services really fit hand in glove, it’s not that one is better,” says David Isenberg, chief strategy and marketing officer for Massachusetts-based Atlantic Broadband.

The TiVo box deal is definitely baby steps—the three pay-TV companies have fewer than 1 million subscribers combined. Netflix will also retain its current separate billing with its subscribers. The companies operate in Chicago, Texas, South Florida, and several other eastern U.S. markets. Netflix has reached similar deals in Europe, where Com Hem of Sweden and Virgin Media in the U.K. have both included Netflix in the TiVo boxes they lease to subscribers.

Netflix has gained little traction, thus far, in its talks with larger cable players such as Comcast (CMCSA) and Cablevision (CVC) about including its service on their boxes. For one thing, the behemoths are still focused on television programming and see little incentive to help Netflix compete with programming they have paid millions to acquire. Comcast, for example, has built a well-regarded video platform that incorporates video-on-demand functions much like Netflix’s service. Large cable companies also generally want payment from Netflix if they were to forge closer infrastructure ties with the company’s video-streaming servers and the heavy demand for bandwidth. Smaller players in the pay-TV industry, however, have largely migrated to a future where high-speed Internet is their core product, with video and its shrinking profit margins only an ancillary business, if it remains one at all. In August, Cablevision Chief Executive James Dolan predicted that so-called “linear television” broadcasting will move from cable infrastructure to the Internet, and that his company may not even sell video at some point.

Netflix access has been incorporated into dozens of streaming devices, from those sold by Roku and Apple (AAPL) to Internet-connected televisions and Amazon’s (AMZN) Kindle and Fire TV. “We want to be like Switzerland and be on any device,” Evers says. And from Netflix’s perspective, if that’s on the ubiquitous cable box, all the better.

Bachman is an associate editor for Businessweek.com.

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Companies Mentioned

  • NFLX
    (Netflix Inc)
    • $427.9 USD
    • -3.19
    • -0.75%
  • TIVO
    (TiVo Inc)
    • $13.75 USD
    • 0.13
    • 0.95%
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