Netflix is set to arrive on Comcast’s much-vaunted X1 set-top box in late 2016. Following a deal between the two video giants, Comcast, the largest pay TV provider in the US with 22.4 million video subscribers, will become the latest and biggest operator to integrate Netflix.
While no details of the agreement have been announced, it is likely to be similar to those Netflix has struck with pay TV providers both in the US – mid-tier cable operators and Dish – and outside it. European operators Virgin Media and Com Hem were the first to secure such deals, back in 2013, and there are now close to 30 active partnerships in place. The dynamics of these agreements and their implications are explored in detail in a recent IHS report, Netflix on pay TV: A Marriage of convenience.
For Comcast, the main goal is to positon X1 as a one-stop shop for TV services, a single video-entertainment hub – providing access to Netflix via an integrated app removes the need for additional devices and remotes and keeps customers within the Comcast ecosystem.
Netflix, meanwhile, becomes exposed to a potential 22.4 million additional pay TV customers. As of Q1 2015, 35% of Comcast’s video customers – 7.84 million – were equipped with the X1 box, but the operator continues to roll it out, at a rate of 40,000 per day. It expects half of its video subscribers to be using the service by year-end.
For Netflix, the deal offers an opportunity to further expand the company’s subscription footprint and cement its position as the fifth major premium channel in the US. However, the overlap between Comcast and Netflix households is already likely to be relatively large. Not only does Netflix report enough subscriptions in the US to be present in over 40% of US TV households, but consumer surveys suggest that the overlap between traditional pay TV households and those taking Netflix is far higher than might otherwise be expected. Many of those surveys suggest that the SVoD service is often supplementary to, rather than substituting, an existing pay TV package. However, what this does provide for Netflix is positioning on the primary video entertainment platform, connected to the principal screen in Comcast customers’ homes. The SVoD player is no longer relegated to secondary connected devices and screens and is now immediately available via the TV remote on the main screen.
Comcast’s story has been somewhat atypical of the average cable operator in the US, using its scale and technological lead to mitigate subscriber losses in the past few years. However, in recent quarters other prominent cable players like Time Warner Cable, Charter, Cox, and Cablevision are undertaking similar initiatives and achieved similar successes. The addition of Netflix to Comcast’s service is one of service enhancements, others including: X1’s improved user interface, increased broadband speeds and bundled security solutions.
Comcast’s Netflix partnership validates the SVoD player’s ongoing pay TV integration model and will likely signal further third-party online video service integration into pay TV platforms. Comcast joins Dish as the other large operator to make Netflix available on its set-top box. Cablevision recently struck a similar deal with Hulu.. And Charter, which will soon incorporate Time Warner Cable and Bright House Networks to form the third largest pay TV provider in the US, has also indicated that it will seek similar partnerships. US pay TV providers are acknowledging that they cannot ignore the popularity of SVoD services, and that, in some cases, it is better to remove barriers to accessing them.
While the X1 has been touted by Comcast as a major contributor to its improved subscriber performance, the addition of Netflix to the platform will make it tough for the operator to reverse consistent declines in the its transactional VoD revenues. The growth of Netflix has been part of the problem, with the rise of SVoD appearing to be at the expense of transactional consumption. Comcast has tried to make its own SVoD play, but found it difficult – its Streampix service gained little traction.
The momentum gained by Netflix as a supplement to traditional pay TV makes its arrival on the platform of one of the world’s largest pay TV operators unsurprising. Its significance is the legitimacy it gives Netflix in the context of pay TV. No longer can it be ignored by even the largest and most powerful operators, which have seen the necessity of collaborating with the online-video giant – even if they are still unsure of the threat it poses in the long term.