Netflix Inc. (NFLX) has started a new Internet video streaming service for children aged 12 and under. “Just For Kids,” as the section is named, appears on the Netflix website and has about 1000 movies and TV shows in its library.
In this new section, films and TV shows of favorite characters such as “SpongeBob SquarePants," "Dora The Explorer," "Phineas and Ferb" and "Big Bird" will be made available through Netflix’s video streaming service. The films and TV shows are categorized under different genres like superheroes, princesses, dinosaurs and girl power.
Netflix’s online service can be accessed through an array of Internet-connected devices such as video game consoles, iPads, smartphones and PCs.
Netflix has recognized that kids are among the biggest consumers of TV shows and films. The company has found that among its 25 million strong customer base in the U.S. and Canada, almost half have watched at least two movies or shows for kids in the last 90 days. Netflix started the service to capitalize on this opportunity.
Additionally, Netflix intends to expand its business into new territories going forward. Recently, the company announced its plan to launch the Internet movie subscription service in Latin America and the Caribbean.
Moreover, with Netflix concentrating on overseas ventures and content additions, cost escalation in the form of license and renewal fees, as well as necessary technology investments, would be a headwind going forward. This would pressurize margins, unless the average monthly revenue per paid subscriber increases.
Additionally, Movie Gallery Inc. and Red Box, the kiosk company owned by Coinstar Inc. (CSTR), are also increasing competition for Netflix.
However, Netflix’s partnerships with Hollywood studios leads to diversified content and a huge video library, which enables the company to retain a favorable position compared to its peers.
Thus, we have a Neutral recommendation on Netflix’s shares in the long term.
We currently have a Zacks #3 Rank for Netflix Inc., which translates into a Hold rating in the short term.
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