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TheStreet Open House

Netflix Has Monetization Issues, Not Facebook and Pandora

Stocks in this article: NFLXFBP

NEW YORK ( TheStreet) -- Netflix (NFLX) CEO Reed Hastings is out with a seemingly bullish statement this week regarding record usage of his company's streaming service.

On Tuesday, Hastings posted a message to his Facebook (FB) page lauding his content licensing team for Netflix's first month (June) with more than 1 billion viewing hours.

Best-case scenario -- this means not only more subscribers, but a solid return to subscriber growth for Netflix.

Even in the best-case scenario, though, Netflix has issues that warrant caution.

The public never sees the contracts Netflix signs with its content partners. It was well-publicized last year, however, when Sony (SNE) pulled its movies from Netflix streaming as part of the Starz contract, that Sony has the right to remove content once Netflix passed a subscriber threshold.

Shortly after Sony made its moves, Starz severed its ties with Netflix, noting, via press release:

This decision is a result of our strategy to protect the premium nature of our brand by preserving the appropriate pricing and packaging of our exclusive and highly valuable content. With our current studio rights and growing original programming presence, the network is in an excellent position to evaluate new opportunities and expand its overall business.

In other words, we cannot continue to allow Netflix to farm our content out to a growing subscriber base for the Wal-Mart (WMT) price of $8 a month. Simply put, Netflix, because it is so cheap and all-you-can-eat, dilutes premium content.

With that mind, an increase in listener hours could actually present similar problems for Netflix. But, again, we do not know the terms of its content deals because the company does not release them. There's a bigger issue holding Netflix back that very few people have discussed. We approach it from a disadvantage because, once again, we can only guess what the terms of the typical Netflix content deal are.

There's lots of talk about the apparent problems Facebook, Pandora (P) and other new media outlets have "monetizing" users, particularly those who gain access via a mobile device such as a smartphone or tablet. It seems that whether desktop or mobile, Netflix actually has the larger, more pressing monetization issue.

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