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• AMZN 81% Rate It
• NFLX 59% Rate It
• VZ 73% Rate It

In a bid to strengthen its presence in Latin America and more particularly in Brazil, Netflix Inc. ( NFLX ) has entered into a multi-year licensing agreement with Twentieth Century Fox. Though the terms of the deal were not disclosed, Netflix subscribers in the region would be able to stream TV shows and films produced by Twentieth Century Fox starting this year in July.

Netflix had expanded in Latin American in September 2011 with its streaming services. After roping in production powerhouse Twentieth Century Fox, Netflix has now added an array of films and TV shows to its portfolio, which it will offer to its Latin American subscribers.

This agreement allows the streaming of TV shows including "24," "Prison Break," "The X-Files," "Arrested Development," "How I Met Your Mother," "Glee" and "Bones." Moreover, movies such as "Gentlemen Prefer Blondes," "Wall Street" and "Office Space" will also be available for streaming from June 2012.

In the recently concluded quarter, Netflix identified Latin America as a nascent market for the video-on-demand segment. The company admits that it is facing challenges due to the lower income, limited broadband availability and limited use of credit cards in the region. However, among these, the latter is the biggest concern for Netflix, as the payment mode for subscriptions is credit cards.

Amid these near-term negatives, Netflix can take solace from the fact that Internet users in Latin America are projected to more than double to 107.3 million in 2020 from 46.2 million in 2011, according to SNL Kagan, a media consultant.

Separately, PricewaterhouseCoopers LLC estimates the market for TV and video subscriptions to grow to $23 billion by 2015. Thus, in the long term, growth prospects in the Latin American region are immense, if Netflix can concentrate on brand-building through the addition of new programs to its streaming portfolio.

We believe that the new content will not only improve Netflix's competitive edge in international markets, but will also boost subscriber growth going forward.  In the recently concluded quarter, the international subscriber base of Netflix added 1.21 million net subscribers on a sequential basis. Revenues from international operations increased 48.3% sequentially.

Additionally, Netflix's future growth and strategy is entirely based on the online streaming business, as its DVD rental business continues to witness subscriber losses. Netflix faces significant competition from Telefonica SA's TerraTV and Net Servicos de Comunicacao SA in the Latin American market and from Amazon.com Inc. ( AMZN ), HBO and Verizon Communications ( VZ ) in the domestic market, which will remain a headwind going forward. Moreover, higher capital expenditure arising from international expansion will impact profits.

We have a Neutral recommendation on Netflix over the long term. Currently, Netflix has a Zacks #3 Rank, which implies a Hold rating over the short term.

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