Netflix and Comcast are the latest contestants on “Let’s Make a Deal,” signing an agreement that would put Netflix’s streaming video subscription service on Comcast’s X1 set-top boxes, reports the Chicago Tribune.
Little information was provided about the new partnership, but Netflix will be available on X1 boxes to Comcast customers later this year. The companies have not said how this arrangement will work or if any additional fees will be required, aside from the cost of cable, broadband and Netflix subscriptions.
This deal is ironic, of course, because the companies are rivals. Comcast (NASDAQ: CMCSA and CMCSK) needs cable subscribers to sustain its current business model, while cord-cutters and cord-nevers love their Netflix (NASDAQ: NFLX). Netflix, on the other hand, has been a vocal opponent of Comcast on the topic of net neutrality, concerned that Comcast could provide favorable treatment to Netflix competitors.
While the FCC’s Open Internet Order prohibits companies like Comcast from giving preferential treatment to anyone, including its partners, Comcast can – and has – adopted data usage limits which could affect those who use Comcast’s broadband to stream OTT services like Netflix. Subscribers who exceed the limits will pay an extra fee for going over.
Comcast is currently testing data usage limits in certain markets. Its most recent market addition was Chicago, reports ABC News. Once Comcast’s Chicago customers are required to adhere to the data usage limits, 23 percent of all Comcast customers will be subject to the new limits. It is likely that such limits will spread across all of Comcast’s markets at some point. This is one way for Comcast to get its share of revenue for customers who use its broadband services to stream rival entertainment services.
Of course, Comcast wants cable subscribers to remain tied to it by offering broadcast, cable, on demand and premium programming that was previously only available via a cable subscription. But times are changing and, thanks to smart TVs, Roku, Chromecast, Amazon Fire stick and other over-the-top streaming devices, much of this programming is available directly from providers like HBO, Starz and Netflix.
Cable providers like Comcast and Time Warner (called Spectrum by new owner Charter Communications) can still offer bundled packages, but they are often more expensive than paying for a good broadband connection and a handful of streaming video services like Netflix and Hulu. Cable companies will have to work much harder to retain their current customers and to acquire new ones.
While large companies like Comcast and Netflix may prefer to operate in siloes, an evolving OTT marketplace makes such partnerships more likely – and more necessary. They will still compete head-to-head in some areas, such as exclusive content, but in other areas they are dependent on each other. Netflix customers have to have an internet connection to watch Netflix programming. Comcast is smart to swallow its pride to find a way for the two companies to work together – at least for now.