Netflix Inc.(NFLX) has entered into a multi-year licensing agreement with Paramount Pictures, a division of Viacom Inc. (VIA) in Canada. The financial terms of the deal were not disclosed.
The deal will not only enable Netflix to expand in Canada but will also add to the long list of old and new movie titles from Paramount Pictures in its library. The deal is expected to provide a first hand experience of the movies produced under the Paramount banner to the Canadian subscribers of Netflix. In the coming months, Netflix subscribers will be able to watch hits such as “The Last Airbender” and “Ironman 2”.
Netflix, as per the 5-year agreement, will be able to stream classical hits as well as new movies that Paramount Pictures produces. Paramount has 350 movie titles under its banner including blockbusters like “The Curious Case of Benjamin Button”, “Titanic” and “Defiance”. It also possesses a broad selection of great comedy movies like “Zoolander” and “Wayne’s World”. “The African Queen”, “Sabrina” (1954) and “Terms of Endearment” are some of the classic movies that Netflix will be adding to its library.
We think competition in the online movie business is escalating and content addition would be the deciding factor when adding subscribers and retaining existing ones. The new deal would help Netflix to remain a few notches above its peers.
Cable channel operators are increasingly seeing Netflix as a primary competitor. Recently, partner and Cable channel provider Starz enforced a 90-day delay on the streaming of its original series programs. Starz plans a similar kind of delay for exclusive movies as well. Epix has also implemented a similar 90-day delay on the streaming of its programs. In similar circumstances, Showtime, a unit of CBS Corp., has also decided to delay the streaming of its shows on Netflix later this year.
This deal with Paramount would be of immense benefit to Netflix in terms of subscriber retention and investor confidence. We think these trends will continue in the near future, as content providers look to earn more and pay TV channels fight to retain subscribers.
Netflix currently has more than 20,000 titles in its streaming library, but most of them are previously-aired TV series and older movies. With the acquisition of the “House of Cards”, it has emerged as a contender for original series that is likely to boost to its subscriber base.
Though in a nascent stage, we believe the online movie and television market is gaining popularity, with several large players scrambling to get a share of the pie.
We believe that the monitoring of partnership opportunities with big Hollywood studios and extraction of strategic agreements with cable companies would enable Netflix to maintain a diversified and upgraded catalog, thus improving its image and driving subscriber growth over the long term.
Netflix continues to face tough competition from Amazon.com Inc. (AMZN), Apple Inc. (AAPL) and Google Inc. (GOOG), as well as cable operators.
Netflix continues to face stiff competition from Movie gallery Inc. and Red Box, the kiosk company owned by Coinstar Inc. (CSTR) that rents DVDs for $1.00 per night.
We maintain a Neutral recommendation on a long-term basis (6-12 months) due to this increasingly competitive market and lack of visibility regarding Netflix’s international expansion strategy. Currently, Netflix has a Zacks #2 Rank, which implies a Buy rating on a short-term basis.
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