Everybody's Giving Away Free Netflix

Netflix, Inc. (NASDAQ: NFLX) is already one of the best bargains in entertainment, but if you don't feel like paying for it, you're in luck: Companies are lining up to give it away.

In September T-Mobile US, Inc. (NASDAQ: TMUS) launched its "Netflix on Us" program, which offers a standard Netflix subscription to "T-Mobile One" family-plan subscribers. If you already have both T-Mobile One and Netflix, you simply have to merge your accounts to take advantage of the offer. From T-Mobile's description of the agreement, it sounds like it will be paying close to full price for Netflix.

But the bigger giveaway news may be that Optimum, the nation's fifth-largest cable provider (now owned by Altice USA, Inc. (NYSE: ATUS)), is making its own Netflix play to get new customers. Optimum says that for new Triple Play (phone, cable, and internet) subscribers, it will pay for a year of Netflix, a value of $120; this follows a similar decision earlier this year in France, where it's the second-largest telecom and cable operator.

Waving the white flag

For years, Netflix was regarded as the enemy by cable providers like Optimum. More than any other company, Netflix has been responsible for the cord-cutting phenomenon that has steadily eroded pay-TV subscribership; cord-cutting is now accelerating, threatening industry leaders like Disney and Time Warner.

But over the years, cable providers have come to realize that they have more to gain by partnering with Netflix than by resisting. At first, they refused to include the streaming service on set-top boxes, but now more than a dozen U.S. pay-TV providers offer easy access to Netflix, with more on the way.

Cable companies have traditionally used giveaways like free HBO or Showtime (a CBS subsidiary) to entice new subscribers, but there's a key difference there from Netflix. Pay-TV channels like HBO or Showtime were add-ons to traditional cable packages. You couldn't enjoy a premium network without subscribing to cable first, so the services were complementary. Netflix is the opposite: A major reason for its success is precisely that you don't need to pay $100/month for a cable subscription to stream it.

Netflix has racked up more than 50 million domestic subscribers, barely five years after it launched a stand-alone streaming service, making its popular appeal a bygone conclusion. For cable operators like Optimum, which are desperate to stop bleeding subscribers, offering free Netflix isn't a bad idea. As the saying goes, if you can't beat 'em, join 'em.

Ironically, the next step in Netflix's domestic growth may be as a part of the traditional pay-TV bundle, as cable providers look to it to bring in new customers. CEO Reed Hastings said in July that the company was looking at proposals to be included in pay-TV bundles, and that the company was "interested in expanding into that."

Here to stay

The Netflix bear case continues to rely on the idea that Netflix's advantages in streaming are fleeting, and will erode as rivals like Disney launch their own streaming services and scale back on selling licensed content to Netflix. But as the Optimum deal shows, the opposite is true. Cable companies that once dismissed Netflix are now eager to partner with it in order to prop up their businesses, and Optimum's move could lead to more pay-TV providers following suit by offering Netflix free to new subscribers.

Similarly, T-Mobile's decision is a reminder that Netflix is exceedingly popular, and at $11/month it's a relatively cheap perk to throw in. Services like T-Mobile and Optimum are offering it because it's a great carrot to attract subscribers.

In an era of fragmented entertainment choices, streaming continues to be a winner. And with a huge content library, attractive lineup of originals, and affordable pricing, no company has mastered the streaming game like Netflix.

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Jeremy Bowman owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool recommends Time Warner and T-Mobile US. The Motley Fool has a disclosure policy.