The deal that allows Netflix to appear on the Comcast X1 set-top box certainly did not come easily. Here are four big sticking points the pair likely had to iron out before the final deal was done.
The announcement by Comcast and Netflix that they have reached agreement to “incorporate” Netflix into X1 is a momentous, though inevitable, event for pay TV in the US. Smaller operators have already done the deal with Netflix, and to remain competitive Comcast had to do it too. However, it must have been tough for both companies to bury the hatchet. Here are four areas that were likely the most contentious in the negotiations.*
The X1 platform tracks absolutely everything that consumers do with the service. Every remote keypress, content search, fast-forward request, and DVR recorder setting is logged and stored by the system on a per subscriber basis. The company can gather this data not only for its services, but for other apps that run on the X1 set-top box.
Netflix views its customer data as a critical, proprietary asset of the company. It uses this data throughout its business, including: to improve its service, inform its content investments, and aid in content license negotiations.
There is no way Netflix would allow Comcast access to any of this data. It probably demanded Comcast guarantee the integrity and privacy of all the Netflix app usage data gathered on the X1 set-top box.
The money flow in arrangements like these are a direct reflection of who has the power in the negotiations. Netflix has categorically demonstrated it does not need Comcast X1 to be successful in the US. Comcast will help accelerate subscriber growth, but Netflix continues to grow at a healthy clip (up 14% year-over-year last quarter) without Comcast’s help.
Comcast on other hand is struggling to tread water with pay TV subscribers. It is facing escalating pressure from the FCC, and from its own customers who increasingly watch Netflix on Roku. As I have argued, it is essential for Comcast to keep its subscriber on the X1 STB as much as possible, and bringing OTT services into the bundle is a great way to do that.
Netflix had the upper hand in these negotiations. It may pay a small bounty to Comcast for subscribers that sign-up through X1, but that is all.
Integrating Netflix into the X1 experience is key to Comcast getting maximum value from the arrangement. Do a bad job and subscribers will continue to use their Roku. Fundamental to the success of the integration is unified search. However, what happens when a customer searches on the X1 STB for Minions, available in Netflix and Comcast OnDemand? Or for a movie like Two Fast, Two Furious, for sale in Comcast’s movie store and for free with membership in Netflix? Dealing honestly with customers in these situations will cost Comcast pay-per-view sales and rentals. Is the company willing to do it?
Ceding control of a customer to a third party app running on its own set-top box is without precedent for Comcast. Sure, support of cablecard gave TiVo the ability to signup Comcast subscribers separately from the cable giant. However, Comcast still controlled its own box, and with no access to VOD from TiVo there was still plenty of reasons for subscribers to stick with the operator’s hardware.
Netflix will own the critical billing relationship with its customers accessing through X1, own all the data about customer activity within its service, and bring the content it sees fit to deliver to its customers. For the first time, Comcast will have almost no control of the activities of its customers while in the Netflix app on its own X1 hardware.
Why it matters
The landmark, though not unexpected, deal between Comcast and Netflix is essential for the cable company, though only helpful to the SVOD provider.
There were certainly many difficult topics in the negotiations. However, the most contentious probably centered around control of data, money exchange, unified search, and customer ownership.
*the author has no specific, insider knowledge of the negotiations between Comcast and Netflix