This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Netflix's Stock Spikes, But Will the Company Even Exist In 2016?

NEW YORK ( TheStreet) -- Netflix (NFLX) illustrates the irrationality of the stock market.

Remember last year when the stock rode on a magic carpet to -- what was it? -- $304 a share. And then it crashed. Twice. (It's now at around $84.)

Pre-implosion. During the implosion. Post-implosion. Nothing changes. Investors react to Netflix news announcements like they're drunk. Or in the middle of a coke binge with a 1980s big-hair band. Any reason to party. They take it and drive it like they stole it for a couple hours, maybe a couple of sessions, until buyers bail and suckers are left holding the bag, waiting for their next hit.

The news: Netflix and Disney (DIS) cut a major deal that gives Netflix access to some key content immediately and in 2013 as well as a lot of premium content in 2016. And the stock is up more than 10% today.

Here are the particulars along with their importance:

¿ In what the two companies call a separate deal, Netflix receives access to Disney classic movies, such as Alice in Wonderland and Dumbo.

What does it mean? This should make you somewhat bullish. Not bullish enough to bid Netflix's stock up by double-digits, but bullish nevertheless.

Kids TV continues as one of Netflix's strengths. Some analysts blame Netflix, which airs reruns of key Nickelodeon shows, for Viacom's (VIAB) ratings woes. Up until this deal, Netflix didn't have many key Disney classics; in fact, it ran some pretty bad knock-offs in lieu of the real thing. So this is a big deal for Netflix.

¿ In 2013, Netflix receives "high-profile Disney direct-to-video new releases."

What does it mean? Don't know. Need some examples of what we should expect this content to be. In any event, it's likely not as big as the classics or the other key part of the pact ...

¿ Netflix becomes "the exclusive U.S. television subscription service for first-run live-action and animated feature films from The Walt Disney Studios," beginning with 2016 releases.

What does it mean? In and of itself, this is major news.

Starz has the Disney movie deal through 2015. Come 2016, Netflix gets first crack to air movies roughly six to seven months after they leave the big screen. This has never happened before with Netflix -- it lands an exclusive deal for first-run material, beating out traditional outlets such as Starz and Time Warner's (TWX) HBO.

But consider this within the context of Netflix.

Since early 2011, I have warned about Netflix's debt load. It pays a ton of money for content -- as of its last quarterly report, the company reports about $5 billion in off-balance sheet obligations, including roughly $2 billion due within a year.

Netflix absolutely had to pay dearly for the Disney rights. That's what the big content owners do. They have all of the leverage in relationships with middlemen -- glorified bootleggers such as Netflix -- and they slap them around in the process. Netflix needs this content, and Disney extracts every last drop. Netflix pays, the debt situation never gets better.

It's the same old story. Whenever it appears that Netflix maneuvered out of its death spiral, something like this happens.

Without massive domestic and international subscriber growth and, ideally, new lines of revenue, this could end up bad news greeted as good by opportunistic traders and the stragglers in the Netflix bullish gaggle.

The 2016 part of this deal means nothing if Netflix is (A) no longer around or (B) cannot make good on its financial obligations with Disney. That's a real concern.

Bet the farm on the obvious: Disney has itself more than covered contractually in the event Netflix dies or is in a world of hurt between now and 2016.

--Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,156.85 +24.88 0.15%
S&P 500 2,001.57 +2.59 0.13%
NASDAQ 4,562.1890 +9.43 0.21%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs