Comcast, Netflix pushed into awkward embrace

By Joseph Williams

While Netflix has struck deals with several telecommunications companies to streamline access to its service, until recently, the largest cable MSO in the country had avoided embracing the digital video giant. Industry observers said Comcast’s new willingness to integrate Netflix into its X1 set-top box is a sign of the times, however, as the company faces more pressure from consumers and the FCC to accommodate such services.

“It’s kind of like a switch went off in the minds of executives,” said Catherine Warren, president of FanTrust, a service management consultancy focused on digital entertainment.

Several conditions have arisen that contributed to the change of heart, Warren and other sources said.

First, Comcast itself is changing. The company pivoted after its deal with Time Warner Cable Inc. fell through due to pressure from federal regulators and negative public sentiment, said Jimmy Schaeffler, chairman at industry research firm The Carmel Group.

“I think they were truly rattled by that, and they have spent the last year making some major adjustments,” Schaeffler said in an interview.

Those adjustments appear to include giving more consideration to digital video as well as customer satisfaction.

Comcast’s position is further challenged as the FCC considers set-top box proposals that allow customers to use any brand of set-top box for their pay TV needs, regardless of the service provider. The proposed rules are designed to make the set-top box market more accessible. Comcast and other cable providers want to show the FCC that they host “open” platforms that play nice with high-demand content providers like Netflix, making such rules unnecessary.

“Making an announcement like this that’s kind of ‘hands across the water’ is an important positioning device,” Warren said.

Comcast is known for marginalizing smaller businesses that will not bend to its will. As Schaeffler put it, “Comcast has always been huge on control.” However, Netflix’s momentum with consumers has so far proven unstoppable.

Lastly, the deal comes at a time when OTT video is being embraced as the future, even by more reticent industry players.

“If you look at where we were two years ago, a lot of Comcast’s partners on the linear side were far less comfortable with OTT in general,” said Seth Shafer, an analyst at SNL Kagan, an offering of S&P Global Market Intelligence.

The consumers have made it clear that Netflix is a reasonable expectation for a well-rounded content library. Comcast’s customer base has largely either figured out a work-around to watch Netflix outside of the Comcast ecosystem or ditched their linear cable package altogether and put that money toward digital services like Netflix, Schaeffler said.

That is because consumers have come to expect good streaming video and access to the world’s best content, Warren noted. It is no longer a special achievement to get “House of Cards” piped onto an HD TV; it is now par.

Considering these dynamics, Comcast has become one of many pay TV operators asking itself, “How can we generate revenue from Netflix and not lose to Netflix,” Warren said.

This is an excerpt from the original written by reporter Joseph Williams Media & Communications (SNL Kagan), S&P Global Market Intelligence. Click here to read the full article.