A leading provider of online movie rental services, Netflix Inc. (NASDAQ:NFLX) recently signed an expanded license agreement with General Electric’s (NYSE:GE) NBC Universal Domestic Television Distribution division.
Under the terms of the agreement, Netflix subscribers will be able to watch movies and television shows from NBC television network and NBC Universal’s popular cable channels over the Internet for just $8.99 a month.
As per the agreement, Netflix members will have access to popular television shows such as Saturday Night Life, including its day-after broadcast for the upcoming 2010, 2011 and 2012 seasons.
Netflix will also stream all the prior season episodes and the upcoming final season (due in 2011) of the high school football drama Friday Night Lights.
Netflix members can watch every episode (both old and new) of 30 Rock, The Office and Law & Order: SVU over the Internet under the current agreement.
The agreement allows Netflix to stream all the prior seasons of hit show Psych and the drama series In Plain Sight, as well as all the episodes of Monk for the first time over the Internet.
Moreover, Netflix will be able to stream more than 75 prior season episodes of Syfy's Battlestar Galactica, as well as prior seasons of the network's popular series Destination Truth and Eureka to its members.
We believe this partnership with NBC Universal will prove to be beneficial for Netflix over the long term as it plans to expand its streaming portfolio. The partnership is expected to boost Netflix’s customer base in the United States.
Despite being in the nascent stage currently, we believe the online movie and television market will be a fragmented market over the long term, due to low entry barriers and decline in the use of DVD. Post Blockbuster’s bankruptcy filing, the analysts believe that Netflix will close more than 58 of its distribution centers as DVD rentals continue to decline.
Netflix recently started an online streaming only service in Canada for $7.99 a month. The company is also planning to start a similar service in the United States in the near future.
However, Netflix is expected to face significant competition from Amazon Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL) and Google Inc. (NASDAQ:GOOG) as well as the cable providers.
Recently, Apple launched an upgraded Apple TV device for streaming video to television sets. Apple also signed an agreement with Netflix, under which the company's streaming video service will be added to Apple TV. Fox and ABC agreed to make their shows available on Apple TV for a rental of 99 cents each. YouTube, a Google division, secured rights to a number of mainstream movies from Lions Gate Entertainment (LGF).
Netflix continues to face stiff competition from Movie Gallery Inc. and Red Box, the kiosk company owned by Coinstar Inc. (NASDAQ:CSTR) that rents DVDs for $1.00 per night.
One of the notable competitors, Hulu − the online video company jointly owned by NBC Universal, the News Corporation (NASDAQ:NWS) and The Walt Disney Company (NYSE:DIS) − opened its Hulu Plus subscription service to supplement its existing free video library in June. Under the plan, which costs $10 a month, the viewers can watch some television shows that are not available free.
Netflix also signed a number of licensing agreements during its most recent quarter (second quarter of 2010), ended June. Netflix signed an agreement with Relativity Media and also started streaming videos through Nintendo's (NTDOY) Wii video game console.
Moreover, Netflix signed an agreement with Starz Entertainment LLC, which enables Netflix’s online service to offer new movies from Walt Disney Co. and Sony Corp. (NYSE:SNE), thereby adding to its growth story.
However, Netflix’s current catalog of 20,000 streaming movies does not include many recent Hollywood hits as the company has been unable to negotiate rights with major Hollywood studios.
We believe Netflix needs to constantly monitor potential opportunities to enter into partnership with big Hollywood studios and cable companies to maintain a diversified and upgraded catalog, thereby providing a fillip to its competitive abilities. Till this materializes, we maintain a Neutral rating on a long-term basis (6−12 months).
Currently, Netflix has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.