Netflix Was Supposed to Kill Cable. So Why Is It Begging to Be Included As a Channel?

Convergence creates strange bedfellows. Netflix was supposed to be cable TV's worst nightmare, the grim reaper responsible for the diversion of millions in movie revenues and the harbinger of dramatic changes in the public's viewing habits.

Umm, yeah, well, stuff changes.

Netflix, like many other businesses is suddenly discovering that in the era of 'frenemies' cooperation can be more profitable - and - sustainable than full spectrum dominance. As the following article explains, the industry - Netflix included - is coming to the conclusion that rather than being competition, Netflix may be complementary.

The entertainment industry has a history of awakening to this sort of belated revelation. DVDs, streaming, even cable itself were all viewed with hostility when first announced. Until the industry realized that there was more money to be made by - to channel an old tv ad - switching rather than fighting. Netflix, too, has dropped the 'smartest kid on the block whose also going to eat your lunch' posturing and recognizing that the costs of driving cable out of business is probably not worth the return. Grabbing a piece of the action is far easier and less expensive.

Households are not cutting their cables or chords quite as rapidly as projections might have led one to believe they would. In addition, Netflix has created a valuable brand. Leveraging that asset is going to drive scale faster and farther if it is done collaboratively. The changes are here to stay, but the way that customers access them and companies build on them may just be different than adherence to the old binary win-lose continuum may have seemed at first. JL

Derek Thompson reports in The Atlantic:

Netflix is in serious talks with Comcast and other pay-TV providers to hop onto the cable bundle as a stand-alone channel. Add it to the list of tech companies—Apple, Google, Microsoft, Intel—who have internally debated trying to "disrupt" the cable TV business, but have wound up working with the cable companies (e.g.: Apple, Xbox) or simply built their own cable equivalent (Google Fiber TV).

For those who already have cable, Netflix, and an Web TV box, this might change nothing. But it's a potential landmark moment in the pay-TV wars, precisely because it shows that the battle between Internet and traditional TV isn't as bloody as some analysts like to pretend—at least, not yet.

For a long time, the Netflix Question for the traditional pay-TV industry (e.g. the cable, satellite, and telco companies, which offer nearly equivalent services) has been: Is Netflix competition, or is Netflix complementary? In other words, are Americans switching to Netflix, or are they adding it while continuing to pay those monthly cable bills?
The simple math suggests that millions of families aren't cord-cutting. They're cord-keeping and adding accoutrements around it. Netflix has about 30 million U.S. subscribers, adding 6 million of those last year alone. Hulu Plus has more than 4 million monthly subscribers, and Amazon Prime has millions more subscribers (or, just as likely, millions of the same subscribers).
But here's the surprising part: All this growth isn't obviously coming at the expense of old-fashioned cable. The number of pay-TV households didn't decline in 2012, despite awful household formation. It grew, according to SNL Kagan, with fits and starts from quarter to quarter, as it has since the recession.
Netflix and cable TV are rivals, in a way. Young households, especially young single people living alone or with just one roommate, no doubt see Netflix as a nice alternative to full-blown cable, and at 1/9th the price.
But Netflix and cable are also complements. Most of the 100+ million TV-watching households still seem to consider Netflix a nice-to-have addition to their gotta-have linear programming. This rumored deal gives both sides something obvious. Cable companies would get America's most popular on-demand TV channel, making them more attractive. And Netflix would get easier access to millions of older families that have resisted streaming, because they prefer the old-fashioned couch-and-screen TV experience without fussing over Web boxes and iPad video.*
The era of smaller bundles might be coming. But here, today, is the area of the super-bundle: Bloated channel menus in the front, with nearly infinite on-demand video in the back, all going to tens of millions of families.
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*One potential, but hardly mortal, danger that occurs to me is, what happens if TV viewers start seeing Netflix as just another channel rather than a stand-alone app? I wouldn't, e.g., pay for TBS alone, because it's just a channel, but I do pay for Netflix alone, seeing it as something between a channel and a cable provider.