Netflix Expands Apple TV Ties in ITunes Billing Alliance

Netflix Inc. (NFLX) is deepening its ties with Apple Inc. (AAPL) by allowing owners of Apple TV set-top boxes to sign up for the video-streaming service directly and pay through their iTunes accounts.

The change takes effect today in all markets, Los Gatos, California-based Netflix said today in a blog post. The upgrade makes it simpler for Apple TV users to sign up and pay, Steve Swasey, a Netflix spokesman, said by telephone.

Netflix is seeking to attract and retain customers by integrating its $7.99-a-month service with Web-based and pay- television partners. The company is considering partnerships with cable operators to offer the service as part of their premium lineup.

The Apple upgrade will take effect today in the U.S., Canada, Latin America, the U.K. and Ireland. Prospective customers will no longer be redirected to Netflix’s website to subscribe, Swasey said. He wouldn’t discuss terms.

Alliances with cable companies would help Netflix reach more customers and mollify concerns that the service threatens to cannibalize pay-TV, Hastings suggested at a Feb. 28 Morgan Stanley conference in San Francisco.

Netflix has held talks with cable providers, Reuters reported yesterday, citing people it didn’t identify.

“It’s not in the short term, but it’s the natural direction in the long term,” Chief Executive Officer Reed Hastings said then.

Netflix is gaining clout to make such deals because it is offering more exclusive content, following the lead of Time Warner Inc. (TWX)’s HBO channel, Hastings said. The biggest hurdle is how revenue is shared, he said.

Sidestepping Competition

“On one side, it’s a good move for Netflix because it helps them sidestep some of the coming competition” from pay-TV players, Tony Wible, an analyst with Janney Montgomery Scott, said in an interview. He has a “sell” rating on the stock. “On the bad side, the cable companies will take a cut of the revenue.”

Such agreements also could shield Netflix from potential moves by Internet service providers to switch from flat-rate monthly data fees to usage-based pricing. Netflix has argued against usage-based billing in Canada and has asked U.S. regulators to take a stand against such moves domestically.

Netflix also faces potential competition from online services planned by pay-TV providers including Verizon Communications Inc. (VZ) and by Comcast Corp. (CMCSA)’s Streampix.

“If we look at potential competitors, if we can share some of the margin with them and then they’re making money because they are upselling us through their ecosystem, that’s a good thing all around,” Hastings said.

Netflix lost 1.8 percent to $105.19 at the close in New York. The shares have gained 52 percent this year.

By the middle of 2013, the company will have five original series for streaming, according to Ted Sarandos, chief content officer.

To contact the reporters on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net; Andy Fixmer in Los Angeles at afixmer@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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