Netflix Inc. (NFLX) has signed a multi-year agreement with Miramax films, enabling its US members to watch critically acclaimed and popular titles like “Pulp Fiction,” “Good Will Hunting” and “The English Patient” from June.
Through this agreement, Netflix will gain the rights of Miramax’s film library that boasts 700 titles. Though the financial details of the deal were not available, Miramax has confirmed that the deal is non-exclusive in nature and such other partnerships with digital distributors in the near future are not ruled out.
Netflix has been entering into partnerships with big Hollywood production houses in order to expand its video library that already has 20,000 titles.
Netflix, with a subscription fee starting at $7.99 per month, has a strong consumer base of over 23 million subscribers. Netflix subscribers now have the option of watching the movies and the TV episodes not only on PCs, Macs and TVs, which are streamed over the Internet, but also on Microsoft Corp’s (MSFT) Xbox 360, Nintendo‘s Wii and Sony Corp’s (SNE) PS3. Through these latest additions, Netflix has not only gained popularity in the US but also a significant traction in the Canadian online movie market.
The partnership with Miramax is set to have a positive impact on the Netflix subscriber base, given the fact that many of the titles to be added to Netflix’s library were nominated for Academy awards, including some of the winners in the Best Picture category. Popular films such as “Bad Santa,” “Chasing Amy,” “Cinema Paradiso,” “Clerks,” “Cold Mountain,” “From Dusk Till Dawn,” “Good Will Hunting,” “Kill Bill” Volumes I and II, “Muriel’s Wedding,” “The Piano,” “Pulp Fiction,” “Reindeer Games” and many of the “Halloween,” “Scary Movie,” “Scream” and “Spy Kids” movies will be available for streaming in the near future.
Netflix is focused on becoming an entertainment powerhouse by content additions to its already vast and varied library, through partnerships with big production houses like Paramount Pictures and Twentieth Century Fox, to name a couple. With the addition of Miramax, it has further strengthened its position in the online movie market.
We also believe that these content additions will enable Netflix to reduce its dependence on cable TV operators and also provide the necessary competitive edge over its peers in the emerging market of online video streaming.
Of course, with larger players beginning to show interest in this emerging market of online video streaming, Netflix will face incremental competitive pressures from Amazon.com Inc. (AMZN), Apple Inc. (AAPL) and Google Inc. (GOOG), as well as from cable operators.
Additionally, Movie gallery Inc. and Red Box, the kiosk company owned by Coinstar Inc. (CSTR), are also increasing competition for Netflix.
Netflix has expansionary plans that will stretch its business beyond Canada and into two new countries by early 2012. The company is also investing to gain rights to films and TV shows outside the U.S. and we expect the margins to be under pressure due to expansion costs on the international front.
Thus, we have a Neutral recommendation on Netflix shares in the long term.
Currently, Netflix has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.
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