) is set to exclusively stream the new season of the Twentieth
Century Fox's cult-comedy series "Arrested Development" for the
subscribers of the U.K. and Ireland from early 2013.
Arrested Development had received critical acclaim after it
debuted in 2003. Despite the show winning six Emmy awards and a
Golden Globe, its viewership declined with every passing season and
higher production costs compelled Fox to discontinue the show in
late 2006. The first three seasons of the show were already
available for streaming on Netflix, and the huge response that it
received compelled the company to revive the sitcom's
Netflix subscribers will also be able to stream other series
from Fox's library such as
Lie to Me
Sons of Anarchy
. Moreover, Netflix had already been streaming
It's Always Sunny in Philadelphia
from Fox's library since it debuted in the U.K. and Ireland in
January this year.
We believe that the new content will not only improve Netflix's
competitive edge in the U.K. and Irish market, but will also boost
subscriber growth going forward. The company is trying to gain a
foothold in the U.K. and Ireland, as there is no dearth of
streaming providers with good and popular content. Moreover,
Internet penetration and use is high, so the market is ripe for the
kind of services provided by Netflix.
Of course, this also means that competition is stiff. Therefore,
similar streaming services such as
) Lovefilm, and other online players such as Channel 4, the BBC,
British Sky Broadcasting Group Plc and ITV Plc are already
However, the video on demand market in the U.K. is expected to
surge by 35% to £379 million from a mere £11 million just five
years ago, according to Screen Digest. Therefore, if Netflix is
able to provide comparable services, there is no reason why it
should not be able to grab a share of this million dollar
Netflix's future growth strategy in the international market is
entirely based on the online streaming business. In the recently
concluded quarter, its international subscriber base increased by
1.21 million net subscribers on a sequential basis. Revenues from
international operations increased 48.3% sequentially.
We maintain our Neutral recommendation over the long term (6-12
months). Despite the higher costs, we think that Netflix will
probably see sales strengthening, as subscribers take note of its
improving portfolio. This would ultimately enable the company to
build a strong position for itself.
However, we believe that increasing costs related to licensing
and renewal fees and higher capital expenditure due to
international expansions can hurt growth in the near term. We
currently have a Zacks #3 Rank on Netflix, which translates into a
Hold rating in the short term.
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