Comcast-TWC merger claims its first victim


Comcast’s proposed acquisition of Time Warner Cable is at least a year from closing, if it even gets that far, but it’s already affecting the strategic calculations of service providers. According to a report by Bloomberg News, talks between TWC and Netflix about integrating Netflix’s streaming service into TWC’s platform and set-top boxes, which were reportedly pretty far advanced, have been put on hold indefinitely.

By itself the decision is not a surprise and was likely mutual. If Comcast gets the deal past regulators, it’s likely to result in TWC subscribers being migrated to Comcast’s Xfinity and X1 platforms and STBs, so making deals at this point to enhance TWC’s platform doesn’t make much sense. As for Netflix, there’s no point in making any sort of set-top deal until it knows which way the winds are going to blow, both on the Comcast-TWC merger and on the broader regulatory response to it.

Just because the decision to cut off the talks was predictable, however, doesn’t mean it’s immaterial or that regulators shouldn’t take note of the development.

Time Warner Cable’s embrace of Netflix was a classic case of keeping your friends close and your enemies closer. Netflix’s success has come in some measure at the expense of cable operators, by encouraging cord cutting. Even among the vast majority of Netflix subscribers that keep their pay-TV subscription, however, Netflix represents a competitive challenge. Every time viewers toggle over to their Roku box or game console to watch Netflix on input two or three, cable operators have to worry about luring them back onto input one. And the more compelling content consumers find to watch on input two the harder that challenge gets.

By inviting Netflix into its own set-top box, TWC was bowing to the inevitable but at least it was keeping viewers within its own, input-one ecosystem. Viewers, meanwhile, would get an easier and more convenient way to watch Netflix. For Netflix’s part, the presence of its app on TWC boxes could lead to more subscriber sign-ups at little cost to Netflix. The arrange was, in effect, or would have been, a text book example of how competition among service providers leads to better outcomes for consumers.

With 30 million cable households under its control post-merger, however, Comcast is likely to feel much less urgency to play ball with Netflix, or at least on terms that Netflix would find amendable. Especially so as Comcast has its own streaming service, Streampix, that it would love to build into a real competitor to Netflix. It also has extensive VOD offerings for TV content. Its cloud-based X1 platform, moreover, is designed specifically to integrate linear pay-TV service with over-the-top on-demand services, but on terms that are most amendable to Comcast.

The integration of linear TV and OTT is inevitable for the industry and would be a clear benefit to consumers. How much of a benefit, however, will depend in large measure on the terms by which that integration happens and on who is calling the shots.

Letting Comcast dictate those terms for nearly a third of the pay-TV market might not be quite as pro-consumer as Comcast officials would have those reviewing its bid for Time Warner Cable believe.

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