By: Brett Sappington, Director of Research & John Barrett, Director of Research

For years, Netflix has sworn that it sees itself as a channel that complements pay-TV service rather than a competitor that displaces it.  However, pay-TV providers have long seen Netflix as a bitter rival and a driver of cord cutting among subscribers.

Now, rumors are swirling that Netflix is negotiating deals with major U.S. pay-TV providers whereby the Netflix app will appear on the pay-TV provider’s set-top-box. These rumors come on the heels of similar deals inked in the UK with Virgin Media and in Sweden with Com Hem. 

Consumers appear eager for such partnerships. In a 1Q2013 survey, Parks Associates asked pay-TV subscribers if they would be willing to pay their pay-TV provider $9.99/month for Netflix service – essentially a higher fee than Netflix charges for its Instant Video service. 20% said yes. To provide a bit of context, approximately 40% of broadband households (most of whom have pay-TV) subscribe to Netflix.

In addition:

• 12% were very likely to subscribe to Hulu from their pay-TV provider.
• 9% were very likely to subscribe to subscribe to a premium (ad-free) YouTube On-Demand service from their pay-TV provider.

Consumer interest is driven by convenience. Users could watch Netflix content on their TV without the need of an additional box, connection to a computer, or even a need to switch inputs on the TV. Adding Netflix into the set-top box also allows consumers to use the same remote control for their pay TV and Netflix viewing.

For pay TV, putting the Netflix app on the pay-TV set-top-box would keep their subscribers from wandering “off the reservation” to find content elsewhere.  A billing partnership whereby Netflix subscription fees are included on the pay-TV bill would allow pay-TV providers to capture some of the revenue currently escaping their coffers. In addition, cable and telco pay TV providers could potentially deliver some of the Netflix content via their TV-oriented delivery infrastructure, potentially reducing the current, and substantial, Netflix broadband traffic on their broadband networks.

So, what started out as a bitter rivalry may turn into a win-win for pay TV and Netflix.