Netflix Seeking Pay-TV Operators for Distribution
NEW YORK – After backing away from deals in Europe, Netflix (NASDAQ:NFLX) announced on Monday that the company is looking for U.S. pay-TV operators, to help expand their domestic streaming business. Given the recent dispute between CBS (NYSE:CBS) and Time Warner Cable (NYSE:TWC) as well as looming battle between the Dish Network (NASDAQ:DISH) and Disney (NYSE:DIS), the timing might be right for a streaming service such as Netflix to tie up with a pay-TV operator.
The thinking goes that carrying a subscription-based service such as Netflix would allow pay-TV operators to retain their appeal to customers even when they are dropping networks over pricing disputes. However, the logic might be flawed as televisions transform from an appliance into an internet-enabled device.
For their part, Netflix believes the move can help the company sustain domestic growth. This is important as some analysts believe the company generates nearly 60 percent of its revenue from domestic streaming. Pay-TV would be the fastest way for the company to reach its goal of 60 to 90 million subscribers, but this would take distribution partnerships with more than one of the top pay-TV distributors.
At this point, Netflix is running out of partner options as Comcast (NASDAQ:CMCSA), Dish Network, Verizon (NYSE:VZ), and DirectTV (NASDAQ:DTV) have launched their own streaming devices. In doing so, they have eliminated the incentive to carry Netflix as a service unless it would appear that these investments are not paying off. Time Warner might be the only significant distribution partner without a set-top streaming device.
At the recent Bank of America Merrill Lynch (NYSE:BAC) Media, Communications, and Entertainment Conference, representatives for Time Warner Cable stated the company has no interest of rolling out an online subscription streaming service. However, this does not mean that the Time Warner is considering a potential partnership with Netflix.
Furthermore, the announcement ignores a few trends. Primarily that subscribers are increasingly using mobile devices or have connected their televisions to a high-speed network (often times without a set-top streaming device) at home. Ultimately, a partnership cannot help Netflix to reign in rising content costs, and this is the biggest driver for the company’s subscription push. If they wanted to make the biggest push Netflix should focus on the app market, primarily mobile, tablet, and integrated apps for the latest generation of televisions as it would appear that the traditional model for pay-TV is changing in ways that even most analysts cannot imagine.
Shares of Netflix opened at $ 309.21 on Tuesday.