Netflix in Talks With Cable Operators About Distribution Deals (Report)

6:38 AM PST 03/07/2012 by Georg Szalai
Hector Vivas/Getty Images

A cable deal for the online streaming service, led by CEO Reed Hastings, would increase its competition with HBO, but one analyst says it could be a sign of weakening subscriber trends.

NEW YORK - Netflix CEO Reed Hastings has already quietly met with some major U.S. cable operators in recent weeks to discuss making the online streaming service available to cable subscribers, Reuters reported, citing people familiar with matter. Reuters didn't specify which cable companies Netflix has talked to.

Hastings at a recent investor conference hinted at the possibility of being offered a cable network as a longer-term option.

A cable deal would increase Netflix's competition with Time Warner's HBO, but could allay fears among TV distributors that Netflix will lead to consumers' cutting the pay TV cord.

At least one cable company could end up experimenting with offering Netflix by the end of the year, even though the company would have to modify its content licensing deals, which currently typically don't allow Netflix to bring programming to cable set-top boxes, according to Reuters.

A Netflix representative declined comment, it said.

"This news is consistent with the company's attempt to brand itself as an Internet network and makes some sense for [pay TV distributors] that are concerned Netflix could trigger cannibalization of their video business," Janney Montgomery Scott analyst Tony Wible said in a report Wednesday morning. "In the end, we believe this move could signal that Netflix needs new mechanisms to drive sub growth and that it could be concerned about the looming implementation of usage-based broadband" pricing as recently introduced by Time Warner Cable.

Added Wible: "A deal with [pay TV distributors] may increase Netflix's chances of survival, but would force the company to reduce its terminal revenue opportunity by sharing average revenue per user with [distributors]."

Wible also suggested that HBO could react by also offering its HBO Go service directly to consumers.

A spokesman for HBO declined to comment. HBO and Time Warner executives have in the past signaled that HBO Go allows for the option to market to consumers directly, but there was no financial benefit for such an approach for now.

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