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Netflix's New Series for Kids

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Netflix Inc. (NFLX) announced that it has collaborated with DreamWorks Animation SKG, Inc. (DWA) to stream an original series, Turbo: F.A.S.T. (Fast Action Stunt Team), exclusively for kids. This original series will be available for streaming from December in the U.S. and abroad.

Turbo: F.A.S.T. is based on DreamWorks’ 3D comedy film bearing the same title. In addition to the original series, Netflix will also stream new DreamWorks movies in the U.S. Moreover, the current partnership complements the earlier deal between Netflix and DreamWorks in 2011, which allowed the former to stream DreamWorks films and TV shows.

Video streaming companies have recognized that kids make up a significant chunk of TV show and film viewers. To capitalize on this, Netflix launched its exclusive Internet video streaming service for kids, ‘Just For Kids’ in 2011. In 2012, more than 2 billion hours of kids content was streamed for Netflix members.

Another close competitor of Netflix in the video streaming market, Amazon.com (AMZN), has recently announced its plans to produce five original children shows through its film production division, Amazon Studios.

Thus, we believe that the current deal with DreamWorks Animation will help Netflix to remain competitive in the video-on-demand market. Netflix’s new and exclusive content offerings to its subscribers are the company’s biggest USP compared to some of its closest peers. Apart from recent movies and documentaries, Netflix is also boosting its original content portfolio to entice new subscribers in the U.S. and International markets.

However, higher costs owing to international ventures and licensing fees, and continued subscriber losses in its DVD business are near-term headwinds. Mounting losses 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 [recent deal with Walt Disney (DIS) and original program portfolio] will help the company to withstand stiff competition from other service providers such as Amazon and HBO.

With its own content delivery network, Open Connect, Netflix’s video library will be directly connected to Internet service providers, ensuring fast data transfer that would eventually enrich the customer experience.

Currently, Netflix has a Zacks Rank #2 (Buy).

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