Netflix Offers Dramatic Content for Investors

Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I have been a little tough on Netflix (NASDAQ: NFLX), publicly and personally, well before I started wreaking havoc on this blogging site. I’ve listened to countless analysts, frustrated customers, and questionable conference calls, watching the stock cough up millions of dollars in market share along the way. After learning of the deal inked with Disney (NYSE: DIS) yesterday and hearing the terms, I wondered if the knee-jerk stock price reaction was warranted.

It has been estimated that Liberty Media (NASDAQ: STRZA) has been paying Disney $250 million each year to show Disney first-run films less than 1 year after theatrical release on the pay TV channel Starz. That contract expires at the end of 2015, whereupon Netflix takes the reins beginning in 2016. But in effect, first-run content won’t be streaming for Netflix subscribers until almost 2017. Financial terms have not been disclosed, but some have estimated the marriage will cost Netflix around $300 million annually, for 3 years. Shares of Netflix popped over 14% on the announcement, and Ted Sarandos, the company’s chief content officer, called the deal a “game changer.”

But Amazon (NASDAQ: AMZN) seems to be playing the game fairly effectively with their own Prime Instant Video, signing a deal with Epix to show Lions Gate Entertainment (NYSE: LGF) offerings (“Avengers,” “The Hunger Games,” etc), 3 months after the Epix pay channel has worn them out (as well as MGM and Paramount titles). This after Netflix declined to renew that deal last August (Netflix retains the rights until August, 2013). For subscribers to these services, Amazon’s Prime is about $15 cheaper per year (austerity), and Netflix has stated they will not raise subscriber rates as a result of the deal. For now, anyway.

So a little over a year after Netflix CEO Reed Hastings downplayed the refusal to renew their deal with Starz (October 2011), he’s rolling in on his snowy white horse, with a newly signed deal, proclaiming Disney has “…the highest-quality, most imaginative family films being made today.” Let’s hope that remains much the same 3 or 4 years from now. Investors should also recall that activist-extreme Carl Icahn announced last month that he has a 10% stake in Netflix. Not only that, he has stated he thinks the company should be sold to a company like Amazon or Verizon.

And today we hear that the company and the CEO have received Wells Notices from the Securities and Exchange Commission, in reference to something Hastings posted on Facebook earlier this summer. Hastings has issued a response to the matter and the drama should resolve itself nicely, but drama is something Netflix could use more of in their streaming content, not their boardroom.

I’m not sure the Disney deal is a “game changer” for Netflix, but it does upgrade the content substantially, which has been anemic for many subscribers. They have slowly improved the streaming selections for us steadfast subscribers, but I’m not so sure the drama is worthy of an investment. I can’t wait to watch it, though.

kmet312 has no positions in the stocks mentioned above. The Motley Fool owns shares of, Walt Disney, and Netflix. Motley Fool newsletter services recommend, Walt Disney, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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