Can Netflix kill cable TV if it’s part of it?
FORTUNE — Streaming television services such as Netflix (NFLX), Amazon Prime (AMZN), and Hulu have long held appeal to so-called cord-cutters who seek to enjoy TV content without having to subscribe to conventional cable TV. Who needs 1,000 channels, they ask, with a monthly bill to match?
The challenge: Many cable companies also serve as Internet service providers, making it difficult to truly cut the cord.
On Tuesday, Netflix announced that it had struck a deal with the seventh-largest cable operator in the U.S., Suddenlink, to put its streaming service on cable boxes for the cable operator’s 1.2 million customers. In late April, three smaller cable companies — RCN, Grande Communications, and Atlantic Broadband — announced that they too would carry Netflix on cable boxes provided to some 500,000 customers through an agreement with TiVo (TIVO).
Netflix and its peers, commonly referred to as over-the-top (OTT) content, were supposed to disrupt the traditional cable business. Have they become part of the problem?
“Netflix has been commonly positioned as competitive to cable TV,” said David Isenberg, chief marketing and strategy officer for Atlantic Broadband. “But the two services are really very complementary.”
Netflix isn’t actually launching a cable channel. Though cable customers can access the service by flipping to the appropriate channel in the digital guide provided by the cable box, Netflix remains a non-linear, on-demand viewing experience, rather than the always-on, no-rewind format of a conventional television channel.
“The notion of Netflix becoming an official channel is possible, although there may be changing definitions of what a ‘channel’ is,” said Greg Ireland, research manager for multiscreen video at the research firm IDC. “Having a presence in the guide with seamless accessibility is more channel-like than having to switch to a different box and bring up an app. But the overall notion of channels may evolve as on-demand evolves, and for some viewers, and for some content, live linear is less meaningful than it once was.”
Netflix sees the move as a way for it to bring its service to traditional cable viewers who may not have experienced it as an OTT service through Blu-ray players, Roku, or other non-cable boxes.
“It makes it easier for people to watch Netflix, as you can watch it from the same device you use to watch regular TV,” Netflix spokesperson Joris Evers told Fortune.
The company’s move to cable in the United States follows similar deals that it struck with pay-TV providers in the U.K., Denmark, and Sweden. In the U.S., the move allows Netflix to compete more closely with cable-only services like HBO (TWX) and Showtime (CBS).
“Netflix’s arrival on cable boxes is very much akin to the launch of HBO in the 1970s,” Isenberg said. “They were the first network to pump up content to a satellite and sent it down to cable. This led to the adoption of cable TV companies that we have today.”
It’s yet another pivot for Netflix, which originally launched as a DVD-by-mail service but successfully transitioned into a streaming service. But despite the “over the top” moniker, the service still required a box or Internet-enabled smart TV, preventing the company from reaching many potential customers.
“As much as some people would like to see it as war between cable and Netflix, it isn’t what is going on,” said Dan Cryan, research director of digital media at IHS Technology. “You have to remember that the major cable companies are now making money from selling big fat broadband pipes, which are being used more and more for things like Netflix.”
A study conducted by Sandvane last fall found that Netflix accounted for about a third of peak web traffic. It’s the primary reason why the company recently concluded a deal with Comcast (CMCSA) to ensure that its customers would avoid throttling to be able to see high-quality streams of its video content.
While it continues to offer a vast library of movies, Netflix has in recent years become popular for binge-viewing — watching multiple episodes in a single sitting — television series, either for its own originals (House of Cards, Orange is the New Black) or past seasons of shows that originally premiere on conventional channels. It is here where some see Netflix as a cable complement, rather than a killer.
“Netflix has built up a really excellent library of content,” said Jim Holanda, CEO of Patriot Media, which owns RCN. “When you go to TiVo Central on RCN you can see what is coming up live, catch up on the current season on our demand service, and now have the option to view previous seasons of a show on Netflix. This allows a TV experience from the beginning of the show to current episodes. That simplicity and ease of use is huge for our viewers.”
In this way, Netflix is complicating the classic linear TV experience. While television viewing has already been changed vastly by DVR technology and time-shift programming, Netflix coupled with cable could further diminish the traditional linear viewing habits, leaving the approach solely to live events like sports matches, awards shows, or the day’s news and weather.
“You will still need linear TV for things like news and sports,” Cryan told Fortune. “Linear TV will still have its place, whether it is for information and live events, and there are still people who have the TV on for background noise. So for those reasons linear TV will continue, but programming could be taken over by an on-demand model, which Netflix does very well.”
Mitchell Stephens, a TV historian and professor of journalism at New York University, said services like Netflix could obliterate the notion of a clock entirely.
“It is hard to imagine that for a lot of TV programming that it isn’t all going to be on-demand in the future,” Stephens said. “For so long, we were obsessed with time when it came to watching TV. There are now many options for seeing movies and TV shows. It is hard not to think that the best place for that content is going to be on-demand.”
That approach could pressure HBO, Showtime, Starz, and other premium cable services to consider a move to an on-demand format.
“This is what we are seeing with HBO Go and Showtime Anytime,” said Atlantic Broadband’s Isenberg. “These are great anytime services with a deep library that allows viewers to access it anytime anywhere they go. This is part of the new model that is taking hold.”
In April, HBO signed a deal that will bring previous seasons of its original series to Amazon Prime.
“HBO is doing this with Amazon and appears to be rushing to find new ways to get distributed online while Netflix is apparently going in the other direction,” Stephens said. “Netflix ruled DVD distribution and saw it was a dying business, and transitioned to streaming. It is now covering its bets by checking out cable distribution.
“One way to look at it is that we’re seeing a period of great upheaval in video programming as a lot of companies are placing bets on different numbers to hedge those bets. For the consumer it presents a lot of options to see TV. Someday we’ll look back on those days when programming was scheduled and if you missed it you have to wait for reruns as being as archaic as having to crank up an automobile.”