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All Seasons of "The Killing" on NFLX

Zacks Equity Research

Netflix Inc. (NFLX) recently announced that all three seasons of popular crime suspense series “The Killing” will be available to its subscribers in 2013. Currently, the first two seasons are available to Netflix’s US customers. Netflix expects that customers in all 40 countries it covers will be able to see them within the next few months.

Most importantly, the prior two seasons will be available online before the launch of season 3 on AMC. Netflix’s partnership with the series producer Fox Television Studios will enable it to offer the latest season just three months after its US television release.

We believe that the addition of this popular television show will strengthen Netflix’s position in the video-on-demand (“VOD”) market. The recent partnerships with Fox, Turner Broadcasting System and The Warner Bros. Television Group, both divisions of Time Warner (TWX), DreamWorks Animation and Walt Disney (DIS) will allow Netflix to offer fresh content to its subscribers in 2013.

We believe that these deals would be incrementally beneficial for Netflix in attracting new subscribers as well as retaining the old ones. 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.

In the recently concluded fourth quarter of 2012, Netflix’s paid streaming subscriber base (both domestic and international) increased 8.76 million from the year-ago quarter and 2.87 million in the previous quarter to 30.36 million.

We believe that the improved content makes Netflix’s streaming services distinguishable from other service providers such as HBO, Amazon.com Inc. (AMZN), Hulu as well as the newly-launched services from cable and media companies such as Comcast, Dish Network and Verizon.

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 improving paid subscriber base, international expansions, diversified content portfolio and a huge video library are the positives in the near term. Moreover, Netflix’s own content delivery network, Open Connect, connects its video library directly to Internet service providers, ensuring fast data transfer to enhance customer experience. This will further improve customer engagement going forward.

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

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