Sept. 19 (Bloomberg) -- Kevin Spacey is poised to scheme his way into more European homes as the politician-star of “House of Cards” should Virgin Media Inc.’s novel deal integrating Netflix Inc. into its cable offerings pay off.
Netflix’s subscription-video service has only been available via the Web until last week, when it signed an accord with Liberty Global Plc’s U.K. pay-TV provider to place its original content, film and TV archive on Virgin Media users’ TiVo Inc. set-top boxes. It’s a new model of collaboration and a talking point as European cable executives gather today in Barcelona for CTAM Europe’s annual cable marketing conference.
“This deal shows it’s possible to have an alliance between cable and content holders,” said Matthias Kurth, executive chairman of the Cable Europe trade association. “In the long run companies like Netflix need a dedicated service as the open Internet will not be sufficient; cable companies are ideal to offer this infrastructure.”
It’s the first time an established cable operator is integrating a streaming service, blurring the lines between the two sides and ending a perceived rivalry for viewers. The deal benefits both companies -- Virgin Media gets new Netflix customers who sign up via TiVo, while Los Gatos, California-based Netflix gets a ready-made audience paying for content and access to its British partner’s infrastructure. As Europe’s content providers, cable and satellite operators push to sign subscribers, it offers a new way to build their brands and cater to appetite for content, old and new.
Liberty Global Chief Executive Officer Mike Fries is due to speak in Barcelona tomorrow. After its take-over of Virgin Media was announced in March, Neil Berkett -- then CEO of the U.K. cable company -- said it would forgo pricey original content in favor of collaborating with the likes of Netflix.
“We can see deals like this to come in European markets in Benelux, Scandinavia and even Germany,” said Guy Bisson, head of TV research at IHS Screen Digest in London. “This agreement is an important indicator on how the industry is evolving; by building a brand that’s valuable.”
It also appeals to viewers who don’t want a complete home-entertainment contract with expensive pay-TV film and sports channels. Netflix charges 5.99 pounds ($9.56) a month. That compares with British Sky Broadcasting Group Plc’s 16-pound premium movie offer, which goes on top of its 21.50-pound basic TV package, according to its website.
“In the long-term there’s no reason to believe that Netflix won’t be a global product in every country; I know people watch it,” Netflix Chief Content Officer Ted Sarandos said at a media conference in Cambridge, England, last week. The deal with Virgin Media attempts to “reduce friction” for a viewer to get to Netflix from the TV, he said.
Netflix, founded in 1997, started out renting DVDs by mail. While it accounts for almost a third of all Internet traffic in North America and has grown to 38 million subscribers, they’re primarily in the Western Hemisphere.
Netflix only arrived in Europe last year and has to build its brand in a fragmented market with multiple languages --there are 24 official ones in European Union member states alone. In addition to the U.K., Ireland and Nordic region, it moved into the Netherlands last week. Liberty Global also owns the UPC Netherlands cable provider, which offers set-top boxes similar to Virgin Media’s.
“Now that Virgin Media is part of Liberty Global it will be interesting to see what deals may emerge with the Horizon box as Netflix expands its European footprint,” Toby Syfret, a TV-industry analyst at Enders Analysis in London, wrote in a Sept. 11 note. “Could the Netherlands be next?”
Grupo Corporativo ONO SA offers the TiVo box in Spain and sees services like Netflix as “potential allies,” according to an e-mailed statement. Italy’s Mediaset SpA is set to unveil its own web-based on-demand service called Infinity, a spokesman said, asking not to be named under company policy.
Former British phone monopoly BT Group Plc is spending 1 billion pounds on sports programming as a way to boost broadband customer loyalty, and teamed up with British Broadcasting Corp., ITV Plc, Channel 4 and Channel 5 to form YouView, a hybrid TV box offering catch-up TV. It’s in talks with Netflix and Amazon Inc.’s video-streaming service Lovefilm about offering the service in the U.K. and should announce a deal “shortly,” said Alex Green, BT’s TV director.
“We see on-demand as complementary to” BT Sport programming, he said.
Netflix declined 0.2 percent to $306.20 at 12:04 p.m. in New York. Its shares have more than tripled this year. Virgin Media owner Liberty Global advanced 0.6 percent to $80. BSkyB rose 0.3 percent to 861.5 pence at the close of trading in London, as BT fell 0.4 percent to 341.30 pence.
Satellite broadcaster BSkyB, the U.K. pay-TV leader, spends more than 2 billion pounds a year on film and sports rights and original productions. It unveiled its own on-demand streaming service, NOW TV, last year. BSkyB will focus on creating new content for its own sake, rather than as a draw for other services, and “combat the threat of commoditization,” said Commercial Group Director Rob Webster.
Still, as Netflix signs exclusive deals with Walt Disney Co. and DreamWorks Animation SKG Inc. and builds its own lineup with new seasons of canceled cult comedy “Arrested Development” and original programs like “House of Cards” and “Orange Is the New Black,” it’s “now surely worth consideration” by BSkyB, Enders’ Syfret said.
“Perhaps the two strangest bedfellows could yet end up as friends,” he said.
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