Netflix Inc. (NFLX) has been restricted by partner and cable channel provider Starz from streaming the new series “Camelot” for 90 days following its release.
Starz plans a similar kind of delay for exclusive movies as well.
Netflix will now have to wait for 90 days before streaming the new series, which beging airing April 1, 2011. Netflix customers currently have the option of streaming the new episodes of original series “Spartacus” as they aired on Starz.
Starz has been concerned that its subscriber declines could be related to Netflix’s online streaming, which enabled viewers to directly access the shows on Netflix without making a Starz subscription. Moreover, they also felt that these defections from Starz were helping Netflix build its own subscriber base (currently at 20 million). Starz hopes that the deal will pull users back to taking a subscription to its channel, since there would be no other way of viewing recent episodes of any original series being aired.
However, an analyst at Goldman Sachs suggested that the delay in broadcasting would not impact Netflix because the majority of its streamed movies are at least 12 months old when they are on the subscription service.
Moreover, Epix’s 90 day delay has not hampered Netflix subscribers. Epix is jointly held by Viacom, Metro-Goldwyn-Mayer Inc. and Lions Gate Entertainment Corp. ( “>LGF ).
In similar circumstances, Showtime, a unit of CBS Corp., has also decided to delay the streaming its shows on Netflix later this year.
Netflix is being seen as a potential threat to the traditional pay TV channels like HBO, Starz and Showtime and Starz’s move to delay TV shows on Netflix can be seen as a strategy to shield its core cable TV customers from venturing out into the streaming world.
Netflix offers its subscribers the option of streaming its services that are available on computers and various other connected devices.
Netflix recently acquired the streaming rights of “House of Cards”, an original political thriller, as it continues to strengthen its position in the online streaming business. The move from a mail-order movie rental model has proved to be much more lucrative for the company, since online streaming does not require handling and mailing charges.
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.
While in the nascent stage, we believe the online movie and television market is gaining popularity and Netflix, in a bid to capitalize on this increase in demand, has planned an offer that would cost $8 per month for subscribers, who won’t rent DVDs and $10 to $20 for subscribers who would rent a DVD. The rental to be paid by the latter group would depend on the number of DVDs rented.
The time spent on online video watching in January increased approximately 45% from last year, according to Neilsen. This seems to indicate that longer videos (most likely movies) are gaining popularity.
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 rating 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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