Charles Sizemore: Netflix Needs To Control Content Costs

By Xavier Brenner

Bolstered by a big increase in subscribers for its DVD and movie streaming service, Netflix (NFLX) stock is up about 134% on the year, making it the best-performing stock of 2013 in the Standard & Poor’s 500 Index (SPX).

On the content front, Netflix has also received plenty of critical praise for the series " House of Cards," a political drama starring Kevin Spacey. Last December, Netflix and Walt Disney (DIS) unveiled a licensing agreement that will bring Disney movies to the online video streaming site starting in 2016.

In an interview with E-Commerce Times, Covestor manager Charles Sizemore points out that "Netflix and its competitors are the biggest shake-up to media since paid cable TV."

Yet securing content will remain a challenge. "By making their own shows, they are bypassing that high cost to some extent," according to Sizemore. Even so, as Netflix scales up and becomes a full-fledged media company, securing content may become more expensive. Explains Sizemore:

"They've been getting their material from the studios at very attractive prices, but as Netflix grows and comes to threaten the media status quo, the content providers are rethinking this. Higher costs for content, coupled with competition from competing services, mean that margins will likely shrink."

 

Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.

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