Netflix Integration Not Right for All Pay TV Operators, Says IHS

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Some pay TV operators have taken an "if you can't beat 'em, join 'em" approach to Netflix, adding the subscription video-on-demand (SVOD) service to its platforms in order to satisfy customers and provide a unified experience. Research from IHS suggests that this strategy isn't sound for all operators.

Companies that have already integrated Netflix into their pay TV offerings—such as Virgin Media and BT TV—found that it had a positive impact on customer satisfaction ratings. But that arrangement wouldn't benefit others that invest in original movies and shows, IHS says.

“Netflix is a both less lucrative and more dangerous content partner to work with than the other premium networks pay TV providers traditionally partner with, such as HBO,” said Ted Hall, research director at IHS Technology. “But collaborating with the ever-popular streaming service is necessary for many operators positioning their platforms as one-stop-shop ecosystems for TV and video content.”

IHS's survey of pay TV executives found concern that Netflix's rising popularity could make customers turn away from core pay TV services and video-on-demand options, or reconsider their premium movie packages, all of which reduces the average revenue per user.

Premium services Showtime, The Movie Channel, Flix, and Encore all lost subscribers in the U.S. in 2014. HBO, Cinemax, and Starz gained. The direct-to-consumer HBO Now option played a part in that gain.

While pay TV operators that partner with Netflix get a share of ongoing subscription fees, that's only for new customers that sign up through the operator's set-top box. IHS calls this insignificant, as most viewers either have an account already or sign up through a computer.

The report "Netflix on Pay TV: A Marriage of Convenience" is available to IHS subscribers only.

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