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US cable firms like Netflix best in solitary confinement

analysis Netflix has an open invitation for US cable companies to combine its streaming television service as part of pay-TV offerings, but experts say the headway Netflix has made abroad will be hard to replicate here.

"Orange Is the New Black" has been a hit for Netlix's originals, but watching it through your pay-television provider isn't likely in the US anytime soon, experts say. Netflix

Netflix says it has had a standing invitation to US pay-television providers to join forces, but so far nobody has shown up for the party.

Despite the benefits to US consumers that would arise from directly linking the top online-video service in the country to the way vast swaths of people watch television on the biggest screen in their house, experts say pay-TV providers here are most likely to keep Netflix at arm's length.

Earlier this month, Netflix sealed its first-ever deal with a pay-television operator. In the UK, Virgin Media said the company's streaming video service would be accessible to its subscribers using TiVo set-top boxes, first with an an initial 40,000 home pilot period and later to 1.7 million of Virgin's TiVo homes. Virgin is the UK's second largest pay-TV operator behind Sky's satellite service, which has more than 10 million customers to Virgin's less than 4 million.

Last week, another European pay-TV distributor joined the bandwagon. Com Hem, the largest cable operator in Sweden, announced a deal with Netflix to put its app on Com Hem's TiVo starting in December. Com Hem reaches about 1.8 million households.

Also last week, Netflix's chief financial officer, David Wells, told Bloomberg on the sidelines of an investor conference that US cable operators have had an open offer to add Netflix for two years.

Previously, Wells has said Netflix is open to forging partnerships like those in the US or elsewhere. "I'd say to the extent that we're interested in reducing that friction on a global basis, we would be interested in pursuing deals like that," he said last year. "You'll see probably progression in a number of different speeds across the globe."

But, he added, "obviously, it depends on a lot on...whether they view Netflix as a threat or not and how much of a threat and so forth."

The benefit for you
Having Netflix as part of a cable or satellite service would not only provide a big benefit to Netflix, it would provide a big benefit to consumers. Netflix has said that most people, when they sit down to enjoy a cinematic experience on the service, gravitate to the television moreso than a PC or -- for a still healthy portion -- mobile devices like tablets.

Having Netflix integrated into pay-TV service would put the service on the preferred screen in more homes at the touch of a couple buttons.

It would also have billing benefits for consumers, consolidating two of their entertainment payment outlays into one place. This would be particularly advantageous to Netflix abroad in places like Latin America, where credit cards aren't as widespread as in the US and popular comfort with putting credit or debit information online hasn't become commonplace.

Netflix spokesman Joris Evers said Netflix generally is interested in making it as easy as possible for consumers to use the service -- it's a strategy that has led to Netflix getting on as many devices as it can, including Blu-ray players, smart TVs, TiVo, Roku, phones, and tablets. "We are always in discussions to expand the universe of devices that run Netflix and that includes set top boxes inside and outside the US," he said.

Brett Sappington, a director of research at Parks Associates, said the best video service imaginable is one that allows consumers to get to the content they want to watch as quickly as possible.

"Ultimately if operators were to integrate Netflix into their interface, one, it makes it easier to find that content. Two, it also allows consumers to access it within the interface, and if the operator can get the consumer to stay within that interface, they can better control and better monetize the video," he noted.

The party crasher
"Initially, you've got to remember pay-TV came from a closed system that was all their own," Sappington continued. "Netflix was the party crasher for the TV industry. All of sudden consumers were getting video from all of these sources, they were the company all the pay-TV providers feared would cause cord cutting."

"Pay-TV providers had a really hard time figuring out how to deal with them," he said.

Tuna Amobi, a media and entertainment equity analyst at S&P Capital IQ, noted that major pay-TV providers in the US have decided to take initiative to compete with Netflix's capabilities. "They're moving a lot of the intelligence from the set-top box to the cloud and broadening a lot of the offerings that they make available through IP TV," he said. "It will allow them to compete better with Netflix, and reduce the incentive for Netflix."

Comcast, the country's biggest pay-TV provider, moved to a cloud-based DVR earlier this year in an update to its X2 entertainment platform, and Time Warner Cable is in the process of rolling one too, he noted, adding that it will allow them to have broader content offerings.

"It's one less reason for me to believe that they're going to want to get in bed with Netflix," Amobi said. "It's not inconceivable one of them, maybe the smaller operators could, but it would be surprising."

Time Warner Cable and Cablevision declined to comment for this article, while Comcast didn't respond to an e-mail seeking a response. DirecTV referred to statements that its chairman and CEO, Michael White, made last week that the company would continue to strengthen its OnDemand offering and didn't anticipate pursuing a broad-based, generalist product like a Hulu or Netflix. Cox Communications declined to comment or speculate about potential partnerships but noted that the company launched a new DVR that is also an IP gateway, which could pull in third-party Internet content in the future and that it views Netflix more like a premium channel, a complementary service.

The psychological factor
Greg Ireland, an analyst for IDC, said he believes pay TV's history with Netflix in the US may be what keeps the two sides from every closing their divide, even if it could at this point work in their own best interests.

"I don't think Netflix has ever been combative to cable, the company has always talked about this complementary nature," he said. "But pay TV is on the defense."

If the operators can come to terms with thinking about Netflix as complementary rather than competitive, it can add a service that makes its subscribers more like to stick around. Pay TV has access to new transactional video-on-demand that Netlfix does not, and access to all the current season television that Netflix does not. Meanwhile, Netflix has access to content that cable and satellite companies don't. Combining the two creates stickiness for a customer, he said. "I think that it's just having to come to terms with Netflix as complementary," Ireland said.

"In reality, Netflix largely is, but psychologically they're not ready to accept that."