Video streaming services provider
) recently signed a new content deal with Turner Broadcasting
System and The Warner Bros. Television Group ("WBTVG"), both
The partnership will enable Netflix to offer some of the
popular Cartoon Network shows such as
and Warner Bros. Animation's
on its "Just For Kids" section starting from March 30, 2013.
"Just for Kids", as the name implies, is targeted at children
aged 12 and under.
Netflix will also stream Adult Swim shows that include
Aqua Teen Hunger Force
. In addition to these shows, Netflix subscribers will also be
able to access season 1 and 2 of the critically acclaimed
from January 2014.
The new content deal further strengthens the partnership
between Netflix and Time Warner. Earlier this month, Netflix
entered into an agreement with WBTVG to stream eight current
(produced in 2012-2013 season) television shows that include '
666 Park Avenue
', and '
The West Wing
' in 2014.
The addition of all these popular television shows will not
only diversify 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
Amid increasing competition from streaming providers such as
), Huluas well as newly launched services from cable and media
companies, Netflix remains focused on boosting its streaming
portfolio with varied content. Apart from recent movies and
documentaries, Netflix is also boosting its original content
Netflix's partnerships with leading Hollywood studios and
entertainment companies such as Metro-Goldwyn-Mayer, Twentieth
Century Fox, Hasbro studios, The Weinstein Company ("TWC"), Epix,
) has enabled it to offer varied content. Through its original
television shows, Netflix has been venturing into different
genres like comedy, political thrillers, autobiographies as well
as horror. Netflix is expected to stream five original series by
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.
Nevertheless, increasing licensing and renewal fees coupled
with higher investment on content delivery network (CDN)
development and overseas expansion will hurt profitability going
forward. 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, 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.
We remain Neutral on Netflix over the long term (6-12 months).
Currently, Netflix has a Zacks Rank #3 (Hold).
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