It is All About Exclusive Content for Netflix

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

According to McKinsey Global Institute, mobile Internet is one of the 12 disruptive technologies. Mobile Internet is about enhancing service delivery, boosting productivity, and delivering better and easier life experiences. Mobile Internet is progressing constantly, and Netflix (NASDAQ: NFLX) is well positioned to ride this trend.

The deal with DreamWorks

Netflix just signed an original programming deal with DreamWorks Animation (NASDAQ: DWA). This multi-year agreement is the largest deal ever signed by Netflix for original content, and it allows Netflix to access new series from the creators of franchises such as "Shrek" and "Madagascar." According to the report from Fox Business, Netflix will have first-run rights while DreamWorks will retain other rights such as DVD sales and distribution to television networks in countries where Netflix doesn’t operate. This deal signals the new win-win model between alternative-content producers and online distribution channels, whereas smaller studios can now reach consumers in new ways.

What’s this deal about?

This deal is about boosting content for children. Netflix will get more than 300 hours of new, original programming from DreamWorks. Netflix quickly signed this deal shortly after its content agreement with Viacom (NASDAQ: VIA) expired. On the other hand, Netflix’s strong rival, (NASDAQ: AMZN) immediately reached an exclusive-content agreement with Viacom to carry the programming on its Amazon Prime video services after Netflix departed with Viacom.

While kids’ shows are one of the most watched TV genres on Prime Instant Video, Bill Carr, Amazon’s vice president of Digital Video and Music, says Amazon and Netflix continue to battle for content for children. Amazon is trying to take advantage of Viacom’s "Dora" and "SpongeBob." Netflix, however, is taking a different approach.

What now?

Strategically, Netflix is focusing on becoming an “expert programmer” and shifting its resources toward exclusive content, aiming for less non-exclusive content, such as the the programming offered by Viacom. Although there will be short-term pains in losing popular kids’ shows due to the expiration of Viacom’s agreement, the success of “House of Cards” demonstrates that Netflix is shifting in the right direction to differentiate itself from other online and mobile video providers.

DreamWorks is a perfect match for Netflix. DreamWorks bought the AwesomenessTV YouTube channel for $33 million in February and is trying hard to enter the online content market. By working with Netflix, DreamWorks can maximize its online exposure while continuing to retain other rights such as DVD sales and non-competitive TV distribution.

By working with DreamWorks, Netflix can strengthen its unique content offerings, thus make it a better investment for shareholders. On the other hand, by working with Netflix to maximize its online and mobile exposure, DreamWorks shareholders will benefit from the growing distribution channels while the trends continue to shift toward online and mobile. This deal makes both Netflix and DreamsWorks better investments.

Unlike Netflix’s strategy to provide unique content, and DreamWorks’ focus on content creation, Viacom and Amazon have different objectives. While both Viacom and Amazon are operating with a more diversified model, their partnership fits well to maximize their viewership and subscribers. For Amazon shareholders, it is definitely a good news to gain from Netflix's short-term pain; however, in the long-term, Amazon will have to combat harder as Netflix continues to evolve and become stronger with its exclusive content offerings.

Bottom line

It is expected that more deals similar to the DreamWorks deal will be signed for Netflix as it continues to position itself as an expert programmer. On the other hand, more studios, such as DreamWorks, will continue to enter into online and mobile space. Mobile Internet has just begun to accelerate its force to disrupt the existing media and entertainment landscape. Netflix is well positioned with a clear strategy to leverage the rising mobile Internet trend.

The television landscape is changing quickly, with new entrants like Netflix and disrupting traditional networks. The Motley Fool's new free report "Who Will Own the Future of Television?" details the risks and opportunities in TV. Click here to read the full report!

Nick Chiu has no position in any stocks mentioned. The Motley Fool recommends, DreamWorks Animation, and Netflix. The Motley Fool owns shares of 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!

blog comments powered by Disqus