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Feb. 24, 2014, 4:51 p.m.

The Comcast/Netflix deal: Twin looks in the rearview and at the road ahead

From a business perspective, the deal — much criticized by net-neutrality advocates — is all about two companies understanding their recent past and preparing for the near future.

In romance, as in money, it’s all about timing.

The Comcast/Netflix damn-the-buffering, full-speed-ahead agreement announced this weekend is all about timing. This is a time of major momentum for each company. The last thing either needs is a speed bump.

Netflix, with 44 million subscribers and oozing growth worldwide, has distanced itself from its rivals, both with those sheer numbers and the brand buzz of House of Cards and other value-enhancing original programming. In its rearview mirror, it can see Apple, Amazon, Hulu, and HBO, among many others, trying to figure out how to play catchup.

With Internet buzz of slower streaming performance beginning to eat away at the seamlessness of its offering, Netflix knew it had to act sooner rather than later. Remember Qwikster, the company’s aborted initiative to split its DVD-by-mail and streaming businesses. Many a business case history has been written on it, but one clear lesson applies here: Deal with issues as quickly as possible. Netflix and Comcast had been negotiating on performance issues for as long as a year, but you could hear the crescendo of easy-streaming-is-over conjecture quickly building over the last two months. In addition, Netflix needs to clear its decks for the introduction of higher, and tiered, pricing: Who wants to pay more if something’s not just working right — and may get worse?

Comcast needs to pick off as many impediments to regulatory approval of its acquisition of Time Warner Cable as it can, as hearings are scheduled and forces like Craig Aaron’s Free Press are making their case against it. (Excellent Tom Ashbrook On Point on the nuances of consumer impact of the acquisition here.) Netflix could have been a major impediment. It could have been a poster child of consumer concern that Comcast’s soon-to-be-even-more-outsized power was bad for the viewing public. Is Reed Hastings going to make a fuss now? (The agreement to not do so is in invisible contract ink.) Going into the year or so of regulatory hearings, Comcast has to put on its best face of problem-solving, partnering friendliness.

There’s also Comcast’s rearview mirror. Yes, it would become a broadband heavyweight — with something like 40 percent of the broadband market in the U.S. — but that’s today, with old-fashioned, slow-as-Slovakia (we’re No. 32, they’re No. 33) broadband. Take just two announcements over the past few days: On Thursday, Google announced it would be interviewing the city fathers and mothers in 34 new U.S. cities to determine where to install Google Fiber next. That’s the promised “100× faster than Comcast” service. Today, WhatsApp said it would move into free global phone calling. Neither foray makes a big difference to Comcast in 2015, assuming the (likely) approval of the TWC deal. By 2018, though, both could be taking significant chunks out of the Comcast bundle.

Fast data. Free Internet voice. Those two get right into two of three bases Comcast is covering with its Triple Play strategy. At first base, all-you-can-eat cable is in slow but steady decline. On second, Internet voice, a great throw-in replacement for landlines and — what was that thing we used to pay for? — “long-distance.” On third, broadband. That, of course, is the growth plan, and, as I and others have written the reason behind the Time Warner Cable deal. (“The newsonomics of Comcast and our digital wallets”) Yes, big is good and carries consumer concern. Yet the forces of digital disruption literally never sleep.

So chalk up the Comcast-Netflix deal as one of an attempt at road repair, as both companies try to scan the environment that’s ahead of and behind them.

Photo of alternate Netflix delivery protocol by Phil King used under a Creative Commons license.

POSTED     Feb. 24, 2014, 4:51 p.m.
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