Netflix Expands Portfolio

Zacks

Reportedly, Netflix Inc. (NFLX) is streaming the final seasons of NBC Universal shows The Office and 30 Rock along with the latest season of Parenthood. Currently, all the 192 episodes of The Office and 135 episodes of 30 Rock are available to Netflix subscribers.

The success of AMC Networks' (AMCX) Breaking Bad season finale has been attributed to the buzz created by Netflix, which streamed all the past seasons prior to the start of the final installment. Although we do not expect the same level of interest around these current shows, we believe that the additions will expand Netflix’s content portfolio.

Amid significant competition from the likes of HBO, Amazon.com (AMZN) and other cable providers, the company remains focused on expanding its subscriber base through content acquisition and production of original shows.

Netflix’ partnerships with the likes of AMC, Fox Television Studios, CBS, PBS Distribution and DreamWorks have helped it to venture into different genres like comedy, political thrillers, autobiographies and horror.

Netflix’s partnership with Fox Television Studios will revive The Killing, a television crime drama, whose production was cancelled by AMC in 2012.  It is also considering streaming drama series Marco Polo, which will join other original shows such as House of Cards, Orange is the New Black, Hemlock Grove and Arrested Development. The company plans to double the number of original programs in 2014.

Moreover, the company’s international expansions in the Netherlands and the recent partnerships with cable television service providers Virgin Media (in United Kingdom) and Com Hem (in Sweden) on TiVo (TIVO) set-top boxes is a major positive in our view. The company is also looking for such kind of partnerships in the U.S., which will further boost its subscriber base going forward.

However, rising content cost is a major headwind in our view. Moreover, original programs require higher investment in promotional activities to generate interest among the target audience, which hurts profitability. Additionally, loss from the international business, due to higher content and marketing costs, is another concern in the near term.

Currently, Netflix has a Zacks Rank #3 (Hold).

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