New Netflix Strategy Could Reset Plans for the Living Room

New Netflix Strategy Could Reset Plans for the Living Room

Plan could shut down Microsoft goals for living room

For years, Microsoft, Apple, Google, and others have struggled to turn the living room into the next big market for their platforms via a series of inexpensive but slow-selling set-top boxes. But a recent strategy by Netflix could put an end to those other plans and reset our expectations for the living room.

"Having the Netflix app on a set-top box is a natural progression," Netflix Chief Communications Officer Jonathan Friedland told The New York Times. "Our goal is to make it as simple as possible for consumers to enjoy Netflix while cable operators see value, too, because it makes their broadband service more attractive."

Netflix is in discussion with cable giants Comcast, Charter Communications, and Cox Communications to add the Netflix service to the cable boxes that the companies' customers already use every day. The move could eliminate the need for users to buy yet another box, understand the complexities of switching HDTV inputs, and learn yet another UI.

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Although the deal could help eliminate concerns about the long-term fate of the now-traditional cable companies, the biggest competitive impact would be on Microsoft, Apple, Google, and others like them. These firms have been trying to gain a living-room foothold for years (decades, in Microsoft's case), and by eliminating the need for an extra box, Netflix—the most popular living-room entertainment service by far—could instantly shut them all out.

To date, the firms have struggled regardless. Microsoft's has an estimated 50 million Xbox 360 consoles in use, with a little over 50 percent of their usage coming from entertainment services such as Netflix. The next-closest runner up, Apple TV, has seen sales of 13 million units over 6 years. Roku, meanwhile, revealed in April that it has sold just 5 million of its set-top boxes, which are largely seen as Netflix front ends. (Google's living room efforts have seen negligible sales so far. And, no, don't point to Chromecast as some kind of success story.)

By comparison, the struggling PC market saw more than 80 million units sold in just the most recent quarter, and the PC market is quickly losing ground to tablets and smartphones. Point being: The living room simply hasn't emerged as a viable large market alongside PCs, tablets, and smartphones, despite the best efforts of firms with otherwise dominant technology platforms.

One could reasonably argue that the number-one reason anyone boots up an Xbox 360, Apple TV, Google TV/Chromecast, or Roku device is to watch Netflix. But if Netflix bypasses those devices and attaches itself to the living-room set-top box that most Americans already use—the cable box—those other devices become largely superfluous.

For the cable companies, gaining Netflix could open the door to further Internet entertainment services—Hulu Plus, Amazon Prime Video, Crackle, whatever—and extend the solution's life cycle, much in the same way that attaching Internet Explorer (IE) to Windows extended the life of Microsoft's core PC product a decade and a half ago. Cable is experiencing its own natural evolution toward being a purely Internet-based service, and a service like Netflix requires that customers obtain a broadband Internet connection from them as well. (Most already do.)

It could also extend the reach of Netflix. Although it's the most popular streaming entertainment service, Netflix still commands a relatively low subscriber base of 30 million customers in the United States. But it has a stated goal of 60 million to 90 million domestic subscribers—a goal that will be more obtainable if the service is made available via devices that consumers already have in their homes. Each of those subscribers currently pays $7.99 per month for the service.

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