Netflix Takes Aim At Premium Cable

As premium cable channels such as Time Warner’s (TWX) HBO, Showtime, and Liberty Media Corp.’s (LINTA) Starz focus on developing their own hit series like “Board Walk  Empire” and “Dexter”, Netflix (NFLX) has been pushing the boundaries of internet television’s place in the entertainment industry.

 

Disney Rights

Netflix has put the crosshairs on traditional pay-TV channels with a new $300 million per year agreement with Walt Disney Co (DIS). Netflix outbid Starz for the rights to show Disney Movies 8 months after their theater debut starting in 2016. This deal will block competitors such as HBO and Amazon (AMZN) Prime from showing these newly released movies during Netflix’s contracted time.

The deal gives Netflix access to Disney’s large portfolio of video entertainment ranging from standard Disney animated films to movies from studios such as Pixar Animation and Marvel. Meanwhile, within the next few months older Disney classics such as “Alice in Wonderland” will become available to Netflix users along with some straight to DVD movies. It is obvious that Netflix is continuing its trend of spending half its revenue on offering new content in order to attract more subscribers 25 million customer base.

The only downside of the deal is that Starz, who holds the current contract with Disney, will be able to capitalize on blockbusters such as “The Avengers 2” and the new Star Wars movie, which are both planned to be released in 2015 and be available on Starz through 2017. However, starting in 2016 it will be Netflix capitalizing on these studio hits.

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Netflix (NFLX): Arguably a bit overvalued right now, this is a stock to keep an eye on over the next few months. Look out for improved earnings as new and better content attracts more users and helps boost Netflix’s top line. The question is if they can overcome these new content costs, but remember, the Internet television phenomenon is still young with lots of upside potential as more people connect their laptops directly to their T.Vs for entertainment.

Written by Nick Sousa

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