Netflix, Inc. (NFLX) And Cable Operators; Implications Of Alliance

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Netflix, Inc. (NASDAQ:NFLX) is holding discussions with cable operators like Comcast Corporation (NASDAQ:CMCSA), Suddenlink, Charter and Time Warner Cable Inc (NYSE:TWC) to port its streaming content service on the domestic cable set-top boxes. However, according to analysts Alan Gould and Tracy Zhang from Evercore, the question is, why would the cable TV operators allow Netflix, Inc. (NASDAQ:NFLX) to do so as the company is expanding its subscriber base, and is a potential threat to Cable networks?

Netflix, Inc. (NFLX) And Cable Operators; Implications Of Alliance

Consumers prefer Netflix

According to analysts, this sort of agreement can be expected from a smaller operator who is under fire due to increased programming costs, and can possibly find solace in a broadband provider by adding the most popular broadband service to its network. However, it does not hold any relevance for the world’s largest MSO who has one of the best programming contracts along with an impressive new user interface in its X1 platform, and a Streampix service which can be a potential threat to Netflix.

One reason behind this could be increasing customer demands of users who will watch whether or not it is available on their cable STB, therefore cable operators are forced to partner with Netflix to keep its customers watching all of their video content through their cable system.

Implications of the alliance

Analysts expect that Netflix, Inc. (NASDAQ:NFLX) will achieve a higher rate of growth once it is integrated into cable boxes, and will see a rise in its current 30 million subscriber base. In the short term, cable operators may squeeze out some benefit by adding Netflix, but long term is still a concern. Further, analysts note that HBO and Epix will be two services that will be impacted in the short term compared to other big networks like Showtime and Starz. However, in the long run, all four companies will probably face the music.

Broadcast and basic cable network providers will get more value on their hits, and less for their repeats and differentiated programming, according to analysts. Further, content producers will derive greater benefit from more buyers of programming. Eventually if Netflix, Inc. (NASDAQ:NFLX) and OTT distributors achieve a scale of the economy then they can take more rights and can produce more in-house content.

Competition to limit profits

Analysts believe that competition will prevent Netflix, Inc. (NASDAQ:NFLX) from raking in the uneconomic profit, and that content companies will provide competition to Netflix. Furthermore, the analysts say that their predictions about competition have not been correct to date, and the stock is gaining new highs, but still believe that the stock is “stock richly valued at a $20 billion valuation.”

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