Netflix Jumps On Cable Buzz, New Content Deal With Sony

Investor's Business Daily

Netflix rose 8% Monday on reports that the home-video service is in talks with cable TV providers, even though some analysts are skeptical. A new TV deal with Sony also lifted shares.

Bloomberg, citing unnamed sources, reported Netflix (NFLX) is negotiating with giants Comcast (CMCSA) and Time Warner Cable (TWC) to add its application to set-top boxes. Talks were said to be progressing fastest with smaller cable operators that use TiVo (TIVO) devices. Netflix already has such a deal with U.K.-based Virgin Media.

The Bloomberg report followed a Wall Street Journal story Sunday about Netflix-cable talks.

The media reports suggest cable giants could see Netflix as a way to retain subscribers rather than as a competitive threat.

Analysts Not So Sure

But analysts have been cautious about the prospect of the company getting in bed with U.S. cable TV leaders.

This month, Bernstein Research analyst Carlos Kirjner discounted the idea that Netflix might turn into an on-demand cable network, writing that Netflix and the cable companies "are not friends.

On Monday, Brean Capital analyst Todd Mitchell also sounded doubtful.

"If Netflix is negotiating with Comcast, we believe it is more likely over some sort of fee for a QOS (quality of service) guarantee for its regular streaming service, in exchange for being able to deliver its service over Comcast's pipes," he wrote in a research note.

But if true, such a deal would be positive for TiVo, Mitchell wrote, reiterating his buy rating on the stock.

JPMorgan analyst Doug Anmuth raised his Netflix price target to 340 from 290, based on the prospect of subscriber adds rather than deal rumors. He also lifted his financial estimates through 2015, saying in a report, "We expect Netflix to build strong brands around its originals (original content), while the company's broad selection of content is likely to appeal to a wider audience over time.

Netflix announced a deal with Sony's (SNE) TV studio to produce a 13-episode show from the creators of the FX legal drama "Damages." Sony Pictures Television is the first major Hollywood studio to make a show for Netflix.

Netflix stock shot up 23.51 to 324.36 Monday. It touched an all-time high of 334.50 on Oct. 3, after breaking out in July.

Comcast stock rose 0.9% Monday and TiVo 1.5%. Time Warner Cable slid 1%.

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