Reuters has broken this exclusive story: "Netflix Chief Executive Reed Hastings has quietly met with some of the largest U.S. cable companies in recent weeks to discuss adding the online movie streaming service to their cable offerings, according to sources familiar with matter."
The article, by Yinka Adegoke and Lisa Richwine, continues, "In what would ratchet up its competition with HBO, the talks could lead to Netflix becoming available as another on-demand option for cable subscribers through their set-top boxes, according to three people familiar with the talks. If a partnership came to fruition, a cable operator might offer Netflix as an additional option added onto a subscriber’s cable bill, according to a fourth person."
The talks have caught some observers by surprise, the article notes, since Netflix has been seen as a competitor to the programming delivered by MSOs.
In recent weeks Hastings has said at some investor conferences that at some point Netflix might be a premium cable network like an HBO. But most people who heard these remarks thought Hastings was talking about the distant future, the article notes.
Currently Netflix’s streaming service can easily be seen on TV screens using some DVRs as well as some other devices such as Sony’s Playstation 3.
This news about Netflix having current discussions with MSOs comes on the same day that Rocco Pendola writes on SeekingAlpha.com that the Netflix business model is broken.
Pendola says, "The Netflix business model broke the second Reed Hastings decided to abandon the high-margin and wildly profitable DVD business for the low-margin, low-profit and, maybe more importantly, low-quality streaming segment."
He adds, "You cannot ramp up streaming without a cash cow. That’s why competition ranging from Amazon.com to Google owns the upper hand. For a while, Netflix relied on the ‘virtuous cycle’ of subscriber growth funding content costs. That died a wholly predictable death. The company also plowed DVD profits back into its streaming business. Hastings effectively killed that plan."
Then Pendola says, "But, let’s look to the future. Hastings made a comment the other day that – and pardon me for being just incredibly arrogant here – proved just how right I have been about Netflix and the larger space all along. For all intents and purposes, Hastings said the day will come (and using the Netflix concept of time that could be next week) when he would consider pitching his service as part of a bundled cable television package. Interesting … particularly when you consider that ‘cord-cutting’ was all the rage, apparently, in 2011. Hastings’ reasoning: … it’s getting tougher to convince cable TV to share rights to their shows – ‘they’re just being good capitalists’ – so Netflix has been striking more exclusive deals with content creators and paying cable-TV prices to do so."
What’s so fascinating is that Pendola’s piece was published before the Reuters article broke the story that Hastings is indeed talking to MSOs now.