The investment advisory press is having a field day with the recently announced Comcast-Netflix deal. The deal, as the companies hope to eventually present it to consumers, will permit Comcast customers to subscribe to Netflix much as they already do to such premium offerings as HBO, Showtime, and Starz. Simple.
But some in the blogosphere want to portray this deal as not just business but as détente in a war (see, for example, here (0) and here (1)). There is a supposed bitter rivalry that started when Comcast charged Netflix for “access” in 2014 – a hypothetical violation of net neutrality rules. Netflix did make such an allegation, but it was unfounded. For those interested, an accurate history of that transaction was set forth by TechPolicyDaily’s own Bret Swanson (2) and others (3). In short, in the 2014 incident, Comcast offered Netflix a transport contract to replace or augment the contract Netflix had with an intermediary transport provider — an offer, basically, for Netflix to skip the middle man (4).
When you put all the heat and drama aside and ignore the attempts to make this a Hollywood script about an evil rival brought to its knees in search of redemption, it becomes clear that the Comcast-Netflix deal is just business. Although the exact terms of the deal are not disclosed, Netflix has already entered into similar deals (5) with cable operators in the US and abroad in which Netflix pays the cable operator a fee for every subscriber that accesses Netflix through that operator’s system. So Comcast potentially will receive revenue for Netflix subscribers and be able to offer its customers an addition to its “one-stop shopping” video platform.
But there is evidence that Netflix may actually need the deal (6) more than Comcast. Cord cutters (7) are not (yet?) the force that many have thought they would be. Therefore Netflix, who is facing slowing growth in the US market, will gain access to the impressive customer base of Comcast. To be sure, these customers can currently access Netflix through alternative means — Apple TV, Wii, or other Internet access points. But the convenience of being able to access Netflix through the set top box already in their home is appealing to many customers — or so Netflix and Comcast hope.
Reduced to its most simple elements, this deal illuminates a common story in the Internet ecosystem — a story long told in the cable world — carriers (Comcast) and content providers (Netflix) are complementary industries and together provide a product that consumers find desirable. To be sure, the exact terms of the deal will depend on a wide mix of variables that influence each party’s bargaining power — relative market size, relative consumer demand, market substitutes and, yes, potential regulatory intervention and pressure. The deal is exciting not because it is good against evil, but because it promises a product consumers may enjoy. It’s the excitement of the free market system doing what it does best — innovating.