Netflix Inc. (NFLX) continued to add to its content with the signing of an agreement with Twentieth Century Fox Television and Imagine Television. The deal allows Netflix to exclusively air all new episodes of “Arrested Development,” an Emmy Award-winning comedy series. Starting in 2013, Netflix subscribers in the U.S would be able to stream the first-run episodes of the series instantly.
Besides the Emmy Award, “Arrested Development” was included in the Time Magazine’s ‘’100 Best TV Shows of ALL-TIME” when it was aired from 2003 to 2006. The show received rave reviews and to revive the series after 5 years, and that too on a first-run basis, is a master stroke for Netflix, which will be beneficial for the company going forward.
Netflix’s first step into the original series category was with the 26-episode drama called “House of Cards”, which the company had added to its portfolio in early 2011. Netflix expects production for the series to start from early 2012 that would be available for subscribers in late 2012. (Read full report on: Netflix Bags “House of Cards”)
With the domestic market getting increasingly competitive, given the technology bellwethers like Amazon.com Inc. (AMZN), Apple Inc. (AAPL) and Google Inc. (GOOG) entering the online streaming business, Netflix is gearing itself to reduce churn by offering its subscribers with new and exclusive titles from big Hollywood production houses.
Neflix’s renewed vigor in the acquisition of programs is inspiring, but the deals that are being signed comes at a cost. If the company is not able to recover these costs from its customer base, its coffers would remain empty, spelling disaster for the company.
Netflix is planning on expanding internationally, offering its services in the U.K., Ireland and the Caribbean. Expansion is a solid strategy, as it would help the company offset losses in the domestic market that are the result of increasing competition. Also, if Netflix is able to enter a few nascent markets, it could enjoy a first mover advantage.
The downside in the near term would be cost escalation in the form of license and renewal fees, as well as the necessary technology investments that would be a headwind going forward. This would put margins under pressure and in turn reduce profits.
Netflix expects to remain profitable on a global basis for the fourth quarter, primarily due to new content additions, which will have a positive impact on the existing subscribers domestically and add more subscribers to its international ventures.
We currently have a Zacks #3 Rank for Netflix Inc., which translates into a Hold rating in the short term.
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