) recently signed an agreement with Warner Bros. Television
Group, which will enable it to stream eight current (produced in
2012-2013 season) television shows to its domestic subscribers.
The licensing deal will allow Netflix to offer highly acclaimed
television series 'Revolution', 'Political Animals', '666 Park
Avenue' 'The Following', 'Longmire', 'Chuck', 'Fringe', and 'The
West Wing' in 2014.
The addition of these popular television shows would not only
diversify the Netflix's streaming portfolio but will also
strengthen its position in the video-on-demand ("VOD") market. We
believe that the deal would be incrementally beneficial for the
company in attracting new subscribers as well as retaining the
The recent deal reflects Netflix's continuous endeavor to
provide diversified content to its subscribers. To accomplish
that goal, the company has entered into a number of licensing
agreements with big Hollywood production houses. Recently, the
company entered into a multi-year licensing agreement with
Walt Disney Company
) for the exclusive right to stream the latter's content to its
The improved content has also driven customer engagement
lately. In the recently concluded third quarter of 2012, the
total unique subscribers (Domestic and International) jumped
25.7% year over year to 31.8 million.
We believe that the improved content makes its streaming
services distinguishable from other service providers such as
Amazon.com Inc. (
, Hulu as well as the newly-launched services from cable and
media companies such as
Comcast Corp. (
Dish Network Corp. (
Verizon Communications (
However, the company continues to see cost escalation due to
higher license and renewal fees. Netflix needs to pay $5.0
billion for streaming content obligations, out of which $2.1
billion is to be paid within the next 12 months.
Moreover, higher capital expenditures due to international
expansion will hurt earnings growth in the near term, in our
view. Moreover, when compared to some of its cable and
communications peers who have diversified revenue and cash flow
streams, Netflix relies solely on streaming for future growth, as
its DVD rental business continues to lose subscribers. We believe
that the streaming market is becoming overcrowded and this will
hurt Netflix's margins going forward.
Currently, Netflix has a Zacks #3 Rank (Hold).
AMAZON.COM INC (AMZN): Free Stock Analysis
COMCAST CORP A (CMCSA): Free Stock Analysis
DISNEY WALT (DIS): Free Stock Analysis Report
DISH NETWORK CP (DISH): Free Stock Analysis
NETFLIX INC (NFLX): Free Stock Analysis
VERIZON COMM (VZ): Free Stock Analysis Report
To read this article on Zacks.com click here.