Netflix Inc. (NFLX:US) is in talks to add its application to the set-top boxes of U.S. cable-television operators, letting customers search for Web-based movies and TV shows alongside traditional programs, three people familiar with the matter said.
Negotiations are furthest along with regional providers and smaller cable operators that use TiVo Inc. (TIVO:US) set-top boxes, including Suddenlink Communications, though the earliest announcements are weeks to months away, said one of the people, who asked not to be identified because the talks are private. Netflix, the largest video-streaming subscription service, also has held preliminary discussions with larger providers such as Comcast Corp. (CMCSA:US) and Time Warner Cable Inc. (TWC:US), the people said.
The talks suggest progress in Netflix’s bid to integrate its service with traditional pay-TV -- an effort under way for two years, Chief Financial Officer David Wells told Bloomberg News last month. Cable operators increasingly see Netflix’s $7.99 monthly service as a tool to attract and retain customers and promote their own on-demand offerings, rather than a threat that will lead users to abandon their pay-TV subscriptions.
For Netflix, cable ties would make it easier for viewers to find and watch shows without switching over to a different device, the people said. Newer set-top boxes blend Internet-based programming with traditional pay television, a development that could fuel expansion for Netflix if it forges ties with cable providers.
U.S. cable operators have had an “open offer” to add Netflix for two years, Wells said in a Sept. 25. interview.
Netflix advanced 5.8 percent to $318.23 at 1:34 p.m. in New York, the biggest gain among members of the Standard & Poor’s 500 Index. The shares have more than tripled this year, for the best performance of any S&P 500 stock.
The Los Gatos, California-based company, with 35.6 million paying subscribers globally as of June, has signed agreements with two European cable systems. The service also can be accessed via game consoles, Blu-ray players, smartphones and Web-TV devices such as Roku.
“We would love to reduce the friction to the end consumer, and to be available via the existing device in the home, which is the set-top box,” Wells said at the Goldman Sachs Communacopia conference last month.
The Wall Street Journal reported Netflix’s discussions with Comcast and Suddenlink Communications yesterday.
Joris Evers, a Netflix spokesman, declined to comment on the talks, as did representatives from Suddenlink, Comcast and Time Warner Cable.
Suddenlink was acquired last year for $6.6 billion, including debt, by BC Partners Ltd., Canada Pension Plan Investment Board and a management team led by Jerry Kent. The St. Louis-based company -- the seventh-largest U.S. cable operator -- has about 1.4 million customers in states such as Arkansas, Louisiana and North Carolina.
Suddenlink is deploying Netflix’s Open Connect equipment, designed to deliver smoother, clearer pictures to cable homes at lower costs. Some large cable operators have balked at using Open Connect, saying it sets a precedent that would make future negotiations with other Web content companies more difficult.
Sweden’s Com Hem and Virgin Media, a U.K.-based unit of Liberty Media (LMCA:US), recently announced they would offer Netflix as part of their rollout of TiVo set-top boxes in Europe. Under those deals, people still would have to sign up for the streaming service, and Netflix would control its own billing.
“Our partners are interested in delivering Netflix to their subscribers,” Steve Wymer, a TiVo spokesman, said earlier this month. “We stand ready to replicate our well-received offerings with Virgin and Com Hem with any partner or future partner.”
TiVo began shipping new set-top boxes in recent months with faster processors that let users load Netflix’s service more quickly. Atlantic Broadband Finance LLC, owned by Montreal-based Cogeco Cable Inc. (CCA), is the first U.S. provider to deploy TiVo’s most advanced set-top box, called Roamio, Wymer said in an e-mail. Older installed boxes may be upgraded to handle Netflix late this year or early in the first quarter of 2014, he said.
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