Why Netflix Needs Comcast More Than Ever - and Vice Versa

Next week, Comcast subscribers who use the company's X1 platform will be able to watch Netflix just like any other cable channel.

Announced earlier this summer, the integration finally appears to be rolling out and will allow cable viewers to browse and watch shows like "Orange Is the New Black" straight from their Comcast boxes. Of Comcast's 22.4 million TV subscribers, the deal will affect the roughly half who are (or will soon be) on the X1 platform.

For two companies that not long ago were at each other's throats, the deal may come as a surprise. But circumstances are forcing Comcast and Netflix to work together.

Netflix is facing particular pressure from investors to show it can attract and keep users in the face of rising content costs. In July, analysts widely downgraded the company's stock after Netflix missed its new-subscriber targets by more than 30 percent. Although the streaming service has been expanding rapidly overseas, even that growth has slowed somewhat, and the company has encountered difficulties breaking into China.

Partnering with Comcast could help Netflix sign up an additional 5 million subscribers in the United States, according to John Blackledge, an industry analyst at Cowen and Company. Although most Comcast X1 users are already Netflix customers, even slight growth around the edges is going to bolster Netflix's bottom line.

But the biggest benefit for Netflix, analysts say, may actually be in keeping its existing users tied to the service rather than letting them walk out the door. By deepening the ways in which users can interact with its content, Netflix is looking to stop the bleeding that began when it recently started to raise prices.

This is "more about increasing usage of existing [subscribers]," said Rich Greenfield, a media analyst at BTIG.

On an investor call last month, Netflix chief executive Reed Hastings said the Comcast deal would make Netflix easier for customers to use. "That increases word of mouth," he said.

Netflix isn't the only Internet video service that's being hit by departures; its churn rate is among the lowest of its competitors, according to an April survey. But for a company facing such steep expectations as Netflix, demonstrating staying power isn't just a matter of corporate well-being - it's a sign of how healthy the market is for online streaming overall.

In comparison, Comcast has to make the opposite calculation: that the rising popularity of online streaming, however niche, could potentially threaten its traditional video business. With hit shows like "Narcos" and "House of Cards" being available only on Netflix, Comcast is at risk of losing customer loyalty to the streaming video company. If people grow to love Netflix's shows too much, what's to stop them from canceling their Comcast TV subscription?

By putting Netflix on Comcast directly, the cable firm gets to keep consumers more within its own ecosystem. Users will be able to switch on Netflix, for instance, by saying "Netflix" into their Comcast-provided, voice-activated remote. And they'll be exposed to traditional cable content right alongside the Netflix content.

"Our incredible teams of engineers and designers have come together to create an experience that is . . . seamless and intuitive," said Neil Smit, Comcast Cable's chief executive.

© 2016 The Washington Post