Across the interwebs, people are rolling their eyes as they read the Netflix is in discussions with cable companies to bundle services. The ‘cable cutter’ community is near apoplectic over this.
The reality is that Netflix is positioning themselves for the long game here.
Remember, Netflix is most interested in Netflix’s survival and profits. They are not focused on your hatred of the cable companies.
Revenue – With cable and satellite penetration well over 80% in the US, we are looking at over 100 million households paying a monthly fee for entertainment. Netflix would like to get a slice of those customer’s money. When you multiply any revenue number by millions, the result is big. By bundling with cable companies, Netflix gets the possibility of vastly increased revenues by tapping into these traditional viewers and exposing them to the Netflix service. Getting the ‘late majority’ and ‘laggards’ to see and learn about the Netflix service is a huge benefit to Netflix.
Content distribution – Netflix has been looking into creating it’s own content, like Hulu and Amazon, to bolster it’s attractiveness to viewers. Creating good television content ain’t cheap, so Netflix is going to want maximize the demand for it to get a good return on their investment. The more people that get a chance watch their shows, the more likely they are to get a bonafide hit. Getting a hit that is Netflix-only would be huge. When the Sopranos was airing, HBO created entire campaigns to drive cable subscriptions and package upgrades simply on the desire of viewers not to miss the show. If Netflix can get enough eyeballs on good content they make, the have a good chance to significantly increase subscribers.
Net Neutrality – The situation in the US is bit strange considering the that major providers of broadband are also the major providers of television programming. We see this surface in the debate known as ‘net neutrality’. The broadband providers don’t want consumers to be able to get content without having to subscribe to their programming service. Over The Top type services like Netflix, Hulu, Amazon, and Apple need the broadband pipes to stay open and unmetered. If Netflix can strike agreements with the cable companies that control broadband, they can protect themselves from being frozen out in a broadband toll situation.
Again, Netflix is aiming to be in every home, whether they be tech enthusiasts or not. What better way to get into people’s homes than to be invited in by the cable company that is already there. While Netflix would love to eventually love to supplant cable & satellite as primary in the home, they are happy to form a temporary alliance if it fits their long term goals. To paraphrase Machiavelli, “Keep your friends close and your enemies closer.”