(Updates with shares in final two paragraphs.)
Sept. 10 (Bloomberg) -- Netflix Inc.’s subscription-video service will be offered on Virgin Media cable systems in the U.K., marking the first time the Web-delivered product is integrated by a major pay-TV provider.
Virgin Media, purchased this year by John Malone’s Liberty Global Plc, will begin testing Netflix with 40,000 customers who use TiVo Inc. set-top boxes, according to a statement today. The feature, which requires a Netflix subscription, will be available this year to all 1.7 million of its TiVo users.
The agreement marks a breakthrough for Netflix, blurring the line between traditional pay-TV and so-called over-the-top services delivered through the Web, such as Netflix and Amazon.com Inc.’s U.K.-based LoveFilm. Virgin Media customers will be able to search for Netflix shows on the same on-screen guide they use to hunt for pay-TV programs.
“It’s a huge win for Netflix,” said Michael Pachter, an analyst with Wedbush Securities in Los Angeles. “Cable sees Netflix as a possible problem for them, an alternative to cable. This is an acknowledgement by Virgin that its customers want that type of service as well.”
Virgin Media, based in New York, had 3.77 million customers at the end of June, all in the U.K. Of those, 44 percent use set-top boxes from San Jose, California-based TiVo, the company that pioneered digital-video recorders. That’s up from 25 percent a year earlier, according to Virgin Media.
Pay-TV operators are struggling to adapt to a shift in viewer habits whereby more consumers watch shows on laptops, tablets, or even smartphones as they commute.
In an agreement reached last week after a one-month dispute, CBS Corp. obtained a significant price increase from Time Warner Cable Inc. while holding on to most out-of-home rights, people with knowledge of the situation said then.
Sony Corp. and Intel Corp. are among tech companies working to deliver Web-based TV products, another threat to established pay-TV players.
With TiVo’s system, a Virgin Media customer searching for shows featuring actor Kevin Spacey would see on a single screen options for “The Usual Suspects” from Virgin Movies and “House of Cards,” a Netflix original, said Gareth Mead, a Virgin Media spokesman.
“We’re delighted to be bringing yet another groundbreaking service onto TV screens in millions of Virgin Media homes,” Dana Strong, Virgin Media’s chief operating officer, said in the statement.
Netflix, based in Los Gatos, California, is widely available on game consoles, televisions and Blu-ray players.
While TiVo software lets users search on a single screen for content across pay-TV, online subscription services and on- demand sites, cable and satellite operators that offer TiVo boxes to their customers typically disable the feature.
“It’s the first time Netflix has ever been added to an operator box,” said Steve Wymer, a spokesman for TiVo. “It’s a big deal, especially if it helps open the gates for operators globally to integrate and stream over-the-top content.”
Rather than spend money on sports rights or other exclusive programming, Virgin Media has focused on the speed of its broadband service as a plus as it competes with British Sky Broadcasting Group Plc and BT Group Plc for pay-TV customers. The deal with Netflix underscores that effort.
Netflix rose 3.5 percent to $304.50 at 10:20 a.m. in New York. The shares, which have more than tripled this year to lead the Standard & Poor’s 500 Index, are trading near the stock’s record intraday high of $304.79 in July 2011. TiVo, meanwhile, advanced less than 1 percent to $12.07 today. It had lost 2.8 percent this year through yesterday.
Liberty Global completed its acquisition of Virgin Media in June. The company, based in Englewood, Colorado, rose 1.1 percent to $77.61 today in New York. It had climbed 22 percent this year through yesterday.
--With assistance from Kristen Schweizer in London. Editors: Anthony Palazzo, Rob Golum