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With apps like Netflix and Hulu, your old cable box wants to once again be your home entertainment hub

by Ashley Rodriguez

There is no love lost between cable operators and streaming video services. The two industries have been duking it out for consumers' eyeballs since streaming burst onto the scene in the late 2000s, leading to the phenomenon of 'cord-cutting,' or customers quitting TV in favor of streaming content.

But now cable and streaming companies are forming unlikely alliances to bring the biggest names in streaming onto the set-top cable box. Comcast recently reached a deal to allow Netflix onto its X1 platform. And Cablevision is selling Hulu's on-demand offering as a premium cable channel.

As regulators try to open up the set-top box and streaming growth slows in established markets, cable and streaming are putting aside their differences to hedge against shifts in both their industries.

"I don't think the wars are over," said Scott Singer, managing director at consulting firm DDG. "The competitors have realized that it's better to be frenemies than enemies."

Industry experts expect other pay-TV operators to make land grabs for streaming partners in the future. The terms of Comcast's deal with Netflix are not public, so it's unclear whether the cable company has exclusive cable rights to the popular web-video app. But there's room for Comcast and other major pay-TV providers such as Charter Communications, Verizon FiOS, Dish Network, and AT&T's DirecTV to makes moves on apps, including Hulu, Amazon Prime Video, and YouTube, as well as Spotify and Pandora.

"The momentum is certainly there," said Greg Portell, a partner in the communications, media, and technology group at A.T. Kearney. "The model now exists for Netflix and the other services to start being bundled and [they] will increasingly be available on those boxes."

Even though streaming services - and Netflix in particular - have taken jabs at cable operators in the past, mostly over the fees they pay broadband providers for internet traffic, their migration onto the set-top box is not totally surprising. It carries on the strategy of making streaming apps available anywhere and everywhere consumers are, including on set-top box alternatives such as Google Chromecast, Amazon's FireStick, Roku, and Apple TV.

"It's a way to expand their market," said Chris King, senior director of product marketing for Oracle Communications. "Netflix has done a great job - Hulu also - of getting their apps onto a variety of alternative set-top boxes! The natural extension that they were missing was the set-top box."

There's also a notable benefit for major apps like Netflix and Hulu, where growth is starting to stall. Millennials may be happy to cut the cord, but set-top integrations reach folks who have no intention of doing so. In a June report, before Comcast's Netflix deal was announced, Morgan Stanley analysts said that a set-top box integration with Charter or Comcast "could be a positive catalyst for further US subscriber growth across older demographics, a key area where Netflix remains under-penetrated."

Older Americans watch more TV on average and are more likely to buy it through traditional channels, the report notes, based on a recent Morgan Stanley survey.

Spurring the momentum for cable companies is the finite amount of popular programming out there. Pay-TV operators are looking for must-watch shows and movies to convince customers not to cut the cord, and although there's plenty of content in these days of 'peak TV,' only a handful of streaming apps have TV shows, films, and other programming that consumers care about enough to want on their cable boxes.

"Everyone's looking for quality content," said Patrick Collins, chief executive of Grace Blue Acquisition. "There's just not enough of it."

Cable operators that are battling for relevance against a myriad of alternative set-top boxes and game consoles also have a lot to gain from bringing streaming apps into their platforms. The hope is that if people can access their favorite apps without switching platforms, they'll stay within the pay-TV ecosystem that's controlled by cable providers.

"Nobody likes a set-top box," said Portell, "but now if that set-top box has a utility to it - i.e. Netflix or any of the other services that they could add to it - it all of a sudden takes away barriers and reasons why consumers would opt for other entertainment platforms."

The advantages of keeping the set-top box as a home's central hub could also go beyond entertainment, for cable companies. Companies such as Time Warner Cable - soon to be Charter - could conceivably bring their smart-home services into the set-top box, for example.

And by running online video platforms through set-top boxes, cable companies will get better data on how customers watch streaming content, which could inform their own programming. It might help pay-TV operators understand, for example, why consumers opt for on-demand content via streaming and other apps over the live, always-on programming cable is known for.

Allowing other apps and services on the box also keeps pay-TV companies ahead of looming regulatory changes by the Federal Communications Commission. The US regulatory body wants to open up the market for set-top boxes, so that Americans can access cable and satellite TV without leasing boxes for hundreds of dollars a year. Turning set-top boxes into the access point for all entertainment and home services might give customers fewer reasons to stray, when they have the option.

Comcast invested significantly in its next-generation X1 platform, and has a clear stake in keeping customers on the box. The X1 platform is now used by about 35% of its video customers (paywall). And the company said the cloud-enabled TV platform boosted video-on-demand transactions and reduced churn among customers during the first two years of its roll out.

"By giving consumers fewer reasons to jump off of that box," said Portell, "the box becomes more valuable."

Quartz