Netflix, Inc. (NASDAQ:NFLX) revealed recently that it struck a deal with Virgin Media for direct access to customers through its TiVo box. The deal means customers in the U.K. will have direct access to Netflix’s streaming video services, and it’s the first time that Netflix has been integrated into a pay television offer.
So does this mean that U.S. cable companies will want to make a similar deal? Citi analysts consider this possibility in their latest research note.
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Virgin Media deal a positive for Netflix
Analysts Mark May, Kevin Allen and Nathaniel Brogadir remain Neutral on Netflix, Inc. (NASDAQ:NFLX) in spite of the possibility that the Virgin Media deal may just be the first one like it. The analysts maintain their rating because of the company’s current valuation, which reached highs it hasn’t seen in two years just this week.
They view the company’s deal with Virgin Media as an incremental positive because it expands the company’s reach in the U.K. market by partnering with a major and rapidly growing pay television provider in that market. It also sets Netflix up for potential expansion into other Liberty Global cable providers since Virgin Media is now part of Liberty Global Inc. (NYSE:LBTYA).
The analysts said their colleague, fellow Citi analyst Jason Bazinet, believes that if such a deal is reached with other companies, it will differ from cable provide to cable provider.
Will other companies accept Netflix?
However, he believes that Comcast Corporation (NASDAQ:CMCSA), the largest multiple-system operator in the U.S., will not be supportive of Netflix’s move into deals with cable companies. He cites the company’s track record of investments into the X1 and X2 platforms as well as its policies, like placing restrictions on HBO Go.
Time Warner Cable Inc (NYSE:TWC), the second largest cable company, may be interested in embracing a deal with Netflix though, he thinks. And other major companies like Charter, Cablevision and others would be up in the air, according to Citi analysts.