Wall Street has chimed in on the significance of a multiyear worldwide deal between John Malone's Liberty Global and Netflix that will see the international cable giant integrate the latter's service in more than 30 countries across Europe and Latin America.
The partnership follows the successful U.K. launch of Netflix on Liberty Global-owned cable giant Virgin Media in 2013, which marked Netflix's first integration of its streaming subscription VOD service into a pay TV offering. Netflix has since launched in most countries of the world.
Morgan Stanley analyst Benjamin Swinburne in his report's title summarized the deal this way: "Liberty Global Distribution a Nice Addition."
He wrote: " It is no secret that recent European launches by Netflix have been slower than earlier waves. To that end, expanding Netflix integration from Liberty's U.K. footprint to its about 24 million-25 million global video footprint is a long-term positive to growth."
Discussing the size of the opportunity, the analyst wrote: "We estimate that the immediately (next 12 months) addressable subscriber base for Liberty's Netflix set-top box integration is approximately 3.5 million-4 million next-gen video subs outside of the U.K."
Swinburne added: "Liberty's footprint in Germany, Belgium and Switzerland are likely to be the most important markets near-term, given Netflix's lower broadband household penetration in those countries. In particular, Liberty has about 6.5 million video subscribers in Germany, which has not ramped as quickly as earlier wave European markets for Netflix, so the vast majority of those customers are not Netflix households today. ... We think set-top integration, including co-marketing and promotional plans and reducing friction for usage, have proven very helpful in many international markets."
Swinburne concluded the broader takeaway from the deal, saying: "From foe to friend, big cable is embracing Netflix, OTT." He added: "We expect Netflix integration in the U.S. with Comcast, likely by year-end, on its next-gen service X1, and ultimately Charter as well."
Drexel Hamilton analyst Tony Wible called the Netflix-Liberty Global agreement "a big deal" for the same reason. "The deal is more important as its signifies a shift in [pay TV operator] focus, changes the competitive advantages for other [pay TV companies] and perpetuates a vicious cycle for TV networks that will help Netflix over the long run," he wrote. "We increasingly see some of Netflix's competitors becoming distribution partners."
The most underappreciated aspect of the integration deal may be the effects on viewing, Wible suggested. "We see Netflix use spiking in integrated homes as its content becomes more accessible. This would hurt TV ratings, pressure ad revenue and perpetuate the vicious cycle that helps propel Netflix's business. The weaker TV networks become, the less they have to pay for content and the more dependent they are on Netflix for monetization. It also pushes more consumers to cut/shave the cord (more discretionary money for Netflix) and incentivizes [pay TV operators] to emphasize their data business."
FBR analyst Barton Crockett addressed whether the news would boost Netflix's stock price. "Our main caveat is that this kind of news is arguably already embedded in a stock that is expected to be adding over 10 million new subs internationally per year," he wrote.