Why Netflix Deal Matters For Comcast?

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Netflix (NASDAQ:NFLX) and Comcast (NASDAQ:CMCSA) have joined forces in a bid to leverage their respective strengths in video streaming and cable TV. This will bring an end to the business rivalry that has characterized their previous relationship.  In order to mutually benefit from this collaboration, Comcast will allow Netflix onto its X1 platform, which more than 30% of Comcast’s video customers use. Netflix will gain access to not only a large and previously untapped platform, but (in all likelihood) new content from Comcast as well.  Additionally, this will give a boost to its subscriber growth. For Comcast, there are potentially a multitude of benefits, including a subdued competitive threat, stability to the subscriber base and reduced scrutiny from regulators. In simpler terms, since a lot of Comcast’s cable customers are already using Netflix, it makes sense for the cable-television company to bundle Netflix app into its service.

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In our previous note, “Here’s How Netflix Can Benefit From Its Deal With Comcast“, we focused on the benefits of the deal for Netflix. Hence, it is worthwhile to figure out why the deal matters for Comcast. The deal makes a great deal of sense from the point of view of competition. Netflix has certain arrangements with smaller cable operators in the U.S. and deals with Internet TV services such as Apple, Roku and Chromecast, which makes it convenient for users of the aforementioned services to access Neflix. With the presence of Netflix on X1, it will become easier for Comcast users to access Netflix as compared to many other ways, which keeps Comcast competitive.

Netflix is regarded as the leading edge of television-style content.  As aggregators of network content, Comcast and other cable networks are under pressure as viewers migrate to other media for movie content in particular. The notable trend of cord cutting (dropping subscription television in favor of broadband Internet, IPTV etc.) is the result of this trends.  In this regard, it makes sense for Comcast to bring Netflix to its platform rather than compete against it, since some of Comcast users have migrated to Netflix for its programming. By retaining the subscribers that could have potentially moved to Netflix, Comcast can keep revenues from its high-priced Xfinity boxes running.

Viewers have feared that Comcast would favor its own video services over streaming services such as Netflix, Hulu and HBO in terms of data usage. This deal, however, helps Comcast somewhat clean its reputation from the perspective of FCC (Federal Communications Commission), which has had a wary eye on Comcast’s approach towards its competition.

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