For Cable, Netflix's Latest Olive Branch Looks More Like a Trojan Horse

Trojan horse, netflix stock, at&t stock, comcast stock, verizon stock, time warner cable stock

The Trojan Horse enters the city of Troy. Image source: WikiMedia Commons

While it may be tempting to view the relationship between Netflix  and traditional cable providers as hostile, this weekend a Wall Street Journal report seemed to turn that thinking upside down -- for now.


A truce?
Apparently, Netflix is currently in talks with U.S. pay-television providers -- the report specifically names Comcast , Time Warner Cable , AT&T , and Verizon Communications -- to include its service as an app on millions of set-top boxes across the country. 

And why not? After all, in September Netflix and Virgin Media announced a similar agreement to bring the popular video-streaming service into as many as 1.7 million homes in the U.K. by the end of this year.

What's more, many stateside cable TV subscribers (including myself) are already shelling out at least $7.99 per month for one of Netflix's popular streaming video packages. Personally, I wouldn't mind this sort of consolidation, which would prove mildly easier than having to switch inputs over to my Blu-ray player or Wii every time I want to access Netflix. But that's probably just the lazy American in me speaking, and I admit it would only be a small bit of added convenience.

That said, cable companies could also use a deal with Netflix to reduce churn in their many change-resistant consumers who don't already have some sort of smart, Internet-connected media appliance. By integrating a somewhat complementary, fast-growing service like Netflix into their set-top boxes, cable companies could effectively remove one reason for longtime customers to cut the cord.

To be sure, the country's largest pay-television companies could use the boost. Last quarter alone, for example, Time Warner Cable lost 191,000 video subscribers, bringing its total to 11.7 million. Comcast, for its part, shed 159,000 paying cable-television customers to end last quarter at just under 21.8 million. 

Then again, mobile communications specialists AT&T and Verizon actually managed to buck the trend by adding 223,000 and 140,000 net subscribers, respectively, to their own much smaller pay-TV platforms last quarter, bringing each of their totals to around 5 million.

Beware of [Netflix] bearing gifts
But Netflix obviously seems the biggest winner of these deals, which explains why the stock closed up nearly 8% Monday.

Even so, I've already read a number of articles asserting that Netflix's move today appears to be one of desperation, perhaps the direct result of yet-to-be-announced languishing subscriber growth. And that would be unsettling, especially when we remember that Netflix has grown its domestic streaming base from around 24 million to nearly 30 million over the past year.

In short, skeptics generally ask something along these lines: Why would Netflix -- the one company seen as largely responsible for creating so many cord-cutters in the first place -- want to join forces with the very pay-TV providers it's supposedly aiming to crush? 

But there's one big problem with that line of thinking. Remember, the four aforementioned television giants alone collectively haul in monthly payments from roughly 43.5 million video subscribers. As a result, if Netflix were to sign deals with all four companies, even if we assume each and every one of Netflix's customer base also has a supplementary cable-TV subscription -- and you can bet many don't -- that still means Netflix's streaming service would be directly exposed to as many as 14 million potential new subscribers.

Maybe a better question, then, would be this: Why shouldn't Netflix more aggressively chase this huge, untapped reservoir of video consumers?

Now, don't get me wrong; this doesn't mean Netflix will immediately conquer cable television from the inside out. In fact, I wouldn't be surprised if traditional television and Netflix can manage to live in peace, at least over the short term.

But as Netflix's already-impressive line of original content continues to grow, I'm convinced that over the long-term such an agreement should only hasten the exodus of consumers who realize pay TV is one bill they wouldn't mind doing without.

Netflix isn't the only company poised to benefit
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The article For Cable, Netflix's Latest Olive Branch Looks More Like a Trojan Horse originally appeared on Fool.com.

Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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