$NFLX Not Likely A Loser in $AAPL/$CMCSA Deal. But $TWC and $AMZN Could Feel Pain

News that Apple and Comcast might team up to deliver streaming television fueled speculation on StockTwits.com about who would win and lose from such a deal. The Wall Street Journal reported late Sunday that Apple is talking to Comcast about a securing a direct line for streaming video on Apple set-top boxes that would avoid Web congestion capable of interrupting programs.

$AAPL is likely trying to ensure that its users do not experience any glitches while streaming content $CMCSA $TWC http://stks.co/t08BJ

— Bidness Etc (@BidnessEtc) Mar. 24 at 11:31 AM

Apple stock rose on the news. Netflix fell six percent on competition fears.

$NFLX Super ugly here. WOW!

— Fishobass (@fishobass182) Mar. 24 at 11:18 AM

Some cashtaggers said the sell-off was overblown.

$NFLX This is a ridiculous over-reaction to some mediocre news. This stock will quickly rebound from today. What a HUGE buying opportunity!

— Brad (@bradn) Mar. 24 at 10:36 AM

Netflix agreed to a seemingly similar deal with Comcast last month. The on-demand streaming video service said it would pay to directly connect to Comcast’s broadband network, helping it to avoid poor download speeds that stalled shows. The terms of the deals were not disclosed.

It’s not clear whether an Apple/Comcast tie up would really damage Netflix. Despite the popularity of Apple’s devices, Apple TV never took off. According to Apple’s last quarterly filing, nearly all the company’s sales come from iPhones, iPads, Macs and iTunes, in that order. Apple doesn’t break out Apple TV sales, probably because they are not significant enough to worthy a mention.

Meanwhile, Netflix has 44 Million subscribers and is growing its subscriber base double-digits year-over-year. Netflix also has its own award winning original programming that attracts subscribers in much the same way that HBO and Showtime original series keep people paying for premium channels.

#StupidStock Move of the Day! $NFLX down 6% on report of deal talks between $AAPL $CMCSA? Proposed offering doesn't sound too revolutionary.

— Paul La Monica (@lamonicabuzz) Mar. 24 at 10:30 AM

The clear losers from the deal are net neutrality advocates, such as Google, who argue that Internet Service Providers (ISPs) make money by charging consumers for high-speed access and shouldn’t be able to additionally charge Internet content companies for faster lines. As more companies make deals for direct lines to households in order to bypass congestion, cable double-dipping will become the norm.

Even Netflix CEO Reed Hastings, a net neutrality advocate, has said that there is little content companies can do, given the current legislative landscape, except pay “tolls” for direct access. In a March 20 blog post, Hastings said that while some ISPs such as Cablevision practice strong net neutrality, the size of others who don’t force deals to pay to play without interruption.

“Without strong net neutrality, big ISPs can demand potentially escalating fees for the interconnection required to deliver high quality service. The big ISPs can make these demands—driving up costs and prices for everyone else—because of their market position,” Hastings wrote. “For any given U.S. household, there is often only one or two choices for getting high-speed Internet access and that’s unlikely to change. Furthermore, Internet access is often bundled with other services making it challenging to switch ISPs.”

Given that Netflix and potentially Apple are playing by cable company rules, Amazon may be forced to follow suit. The company offers streaming video to its Prime subscribers and is creating its own original content, clearly to compete with the likes of Netflix.

Yet all the extra “tolls” Comcast collects from the likes of Apple, Netflix and potentially others may not prove a boon for its business–if the charges impact how regulators view the proposed $45.2 Billion merger with Time Warner Cable. The Justice Department’s anti-trust division and individual states are investigating whether the combined company, which would have 30 Million subscribers, would gain monopolistic control over television services, enabling them to, in essence, set fees. The states are particularly concerned about how the deal could impact broadband access, according to a Reuters’ report last week. Sen. Al Franken (D-Minn) has said the deal would give Comcast too much power to manipulate Internet services.

$CMCSA trying to convince federal regulators to approve its deal to buy $TWC http://stks.co/s07tK

— Bidness Etc (@BidnessEtc) Mar. 21 at 05:59 PM

To be sure, Comcast has denied that it is anything but a net neutrality advocate. The company notes that it agreed to abide by net neutrality rules after merging with NBC Universal. It has denied slowing down Netflix’s service, aka “throttling” it, to pressure a deal. In a March 20 blog post, seemingly responding to Hastings’ missive, Comcast wrote that net neutrality was never designed to cover interconnection to receive uninterrupted service.

“Providers like Netflix have always paid for their interconnection to the Internet and have always had ample options to ensure that their customers receive an optimal performance through all ISPs at a fair price,” Comcast wrote. “We are happy that Comcast and Netflix were able to reach an amicable, market-based solution to our interconnection issues and believe that our agreement demonstrates the effectiveness of the market as a mechanism to deal with these matters.”

The question for Comcast and Time Warner Cable investors is whether regulators will agree that the market can still set fair prices when the number one player grows even more massive.


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