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Netflix's Search for Bundling Buddy

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- Netflix (NFLX) is reportedly in talks with major U.S. cable companies in the hopes of finding a partner to offer its streaming service as part of cable TV programming bundle. This is surprising as in recent years these companies considered Netflix a threat. However, given that Netflix has concentrated on bringing older movies and TV shows to its subscribers, it has transformed its image from a threat to a complementary service for cable companies.

The company has realized that partnering with the cable companies can provide a new marketing channel which will help boost its subscriber growth and consequently help it expand its lead in content among major streaming services. This will help Netflix in competing better against the emerging players such as Amazon (AMZN), Dish Network's (DISH) Blockbuster and others. We talked about this emerging competition earlier.


See our complete analysis for Netflix

If we extend this opportunity to whole spectrum of pay-TV service providers, we find that the majority of the big ones are looking to create their own service and so are probably uninterested in Netflix's offering. Dish has Blockbuster, Verizon (VZ) is partnering with Redbox, DirecTV (DTV) has plans to launch its own streaming service and Comcast (CMCSA) has already launched Xfinity Streampix.

It appears that Netflix's potential partner could be Time Warner Cable (TWC) for a few reasons. Firstly, Time Warner Cable does not have a viable streaming service that can emerge as an alternative to Netflix. At best it offers apps to stream current programming on few devices.

Secondly, unlike others, Time Warner Cable's pay-TV subscriber trends didn't improve in Q4 of 2011. Thus the company can bundle Netflix's service to improve subscriber experience and gain from cross-marketing opportunities.

Thirdly, Time Warner Cable has been traditionally slow to catch up with industry changes and partnering with Netflix might be a viable option to launch a streaming offering.

Our price estimate for Netflix stands at $133 , implying a slight discount to the market price.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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