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Netflix Expands its Original Series

Zacks Equity Research

Netflix (NFLX) has asked Lions Gate television, a division of Lions Gate Entertainment Corp. (LGF), to produce the second season of prison comedy series Orange is the New Black. It will be available for streaming in 2014. The production process is slated to begin this summer, according to Netflix.

The season one of Orange is the New Black is scheduled to be released by Netflix on Jul 11.  All 13 episodes will be available to Netflix subscribers in the U.S. and abroad.

Orange is the New Black is being produced by Jenji Kohan of Weeds fame. The story revolves around a women’s federal prison where Piper Chapman (Schilling) has been sentenced to serve 15 months for possessing a suitcase full of drug money for Alex Vause (Prepon).

Very recently, Netflix announced that it will stream the second season of its original horror-series, Hemlock Grove, in 2014, produced by Gaumont International Television. The second season will consist of 10 episodes and is expected to go into production later this year.

Netflix’s growing offerings in the original-program series is expected to diversify its online content and help it stand out among other streaming content providers such as Amazon (AMZN), HBO, Hulu and Comcast Corp (CMCSA).

We believe that these initiatives will be incrementally beneficial for the company going forward, helping it to add new subscribers while retaining the older ones. This is supported by Netflix’s first-quarter addition of 2.03 million and 1.02 million streaming subscribers in the domestic and international markets, respectively.

However, higher costs owing to international ventures and licensing fees and continued subscriber losses in its DVD business are the near-term headwinds. Loss incurred from the international business, due to higher content and marketing costs, is another concern in the short term.

Nonetheless, we believe that new streaming content deals and its original content portfolio should be able to attract new subscribers both in the U.S. and international markets.

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

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