NEW YORK ( TheStreet) -- Netflix (NFLX - Get Report) CEO Reed Hastings tells the world that "binge-viewing" of AMC Networks' (AMCX - Get Report) reruns drives ratings for current seasons of shows such as "Breaking Bad."
Unwilling to upset an arrangement that sees Netflix pay AMC a king's ransom to license these shows, AMC brass accepts the talking point. Another Reed Hastings' smoke-and-mirrors-fueled Internet meme is born.
But what if this proclamation, just another from Netflix that so many accept on blind faith, doesn't reflect reality? What if there's something seemingly sinister to Netflix's business at play?
One of the few Wall Street analysts worth quoting, Richard Tullo at Albert Fried, thinks that might be the case.In a note released this week, shortly after Netflix's well-received quarterly report, Tullo fleshed out his alternative scenario:
In our view, we think roughly 1 million of the subscribers added by NFLX since March 31, 2013 have been due to the strength of AMC's tent pole content: Breaking Bad, Mad Men, and now The Walking Dead. Thus our view, content is king and AMC is making Netflix not the other way around is our observation. That insight is very good news for AMC shareholders in our view. We suspect if Netflix had no second party content and only House of Cards, Orange is the New Black, Hemlock Grove, Arrested Development Season IV and Mako Mermaids only +/- 7,500,000 million users would subscribe to be generous.What Tullo puts forth next is even more interesting -- a deal between AMC and Time Warner's (TWX - Get Report) Home Box Office (HBO):
We think AMC is in position to sell exclusive Streaming rights under a guaranteed basis and for significantly more money. Our first choice would be HBO. If NFLX is pushing hard to get on STBs we think NFLX Streaming is cannibalistic to Linear advertising and killing the Goose for the egg. However if HBO and AMC operate as is on linear but AMC's content is streaming on HBO Go, the value of the HBO $12.99 to $17.99 subscription is enhanced and we think second party streaming could restart HBO subscription growth and AMC has to spend less on App Development. Thus Enhanced HBO Streaming is an elegant idea in our view.Tullo thinks others, particularly Amazon.com (AMZN) and Hulu, will bid for the AMC content as well. This scenario would produce dire consequences for Netflix:
Thus we think AMC can orchestrate a price war for content but the best outcome aligns our views with John Malone and as he said we all made billions from HBO in the 1980's. It could happen again and we think AMC can be the catalyst to make it happen.Netflix can't compete with the pocketbooks at Amazon, Hulu and, most certainly, HBO. And, if it ends up raising cash through a secondary stock offering or some other method, it would have to immediately blow a good chunk of the dough to keep the AMC originals. Tullo presents an incredibly attractive case. I have to think when HBO executives -- or decision makers at networks with both linear and streaming offerings -- see his idea, it will pique their interest. And, if the idea gains traction and comes to be, it literally could leave Netflix with next to nothing and end this momentum-fueled magic carpet ride sooner rather than later. Follow @rocco_thestreet -- Written by Rocco Pendola in Santa Monica, Calif.