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Netflix Explores Putting Movie Service on Cable Systems

March 7 (Bloomberg) -- Netflix Inc., seeking to expand its subscription video-streaming business, is considering partnerships with cable operators to offer its service as part of their premium lineup. Bloomberg's Sheila Dharmarajan reports on Bloomberg Television's Bottom Line(Source: Bloomberg)

Netflix Inc. (NFLX), seeking to expand its subscription video-streaming business, is considering partnerships with cable operators to offer its service as part of their premium lineup.

“It’s not in the short term, but it’s the natural direction in the long term,” Chief Executive Officer Reed Hastings said at a Morgan Stanley technology conference last week in San Francisco.

Alliances would help Netflix reach more customers and mollify cable operators that see the company’s $7.99 monthly service as a threat to cannibalize their businesses, Hastings suggested at the Feb. 28 event. The company, which delivers films and TV shows over the Web, has held talks with cable providers, Reuters reported yesterday, citing people it didn’t identify.

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.

“There’s no reason that doesn’t make sense for Netflix, depending on the economics,” Hastings said. “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.”

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 models. Netflix has argued against usage-based billing in Canada and has asked U.S. regulators to take a stand against such moves domestically.

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The first partnership may be tested by year-end, Reuters reported.

“We meet with cable companies all the time,” said Steve Swasey, a spokesman for Netflix, who declined to discuss specifics of talks. “Reed’s comments about future possibilities stand.”

Alex Dudley, a spokesman for New York-based Time Warner Cable Inc. (TWC), the second-largest U.S. cable system, declined to comment. D’Arcy Rudnay, a spokeswoman for Philadelphia-based Comcast Corp. (CMCSA), the largest cable operator, didn’t respond to a request for comment.

Netflix, based in Los Gatos, California, gained 1.7 percent to $108.90 at 11:36 a.m. New York time. The shares had advanced 55 percent this year before today after declining 61 percent in 2011.

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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