Netflix (NFLX) to Stream Original TV Programming

by Anthony John Agnello | March 16, 2011 12:08 pm

Streaming video giant Netflix (NASDAQ: NFLX) has little to prove. With a subscriber base of more than 20 million users and a business model that has fundamentally altered the movie business, you would think Netflix could rest on its laurels.

Blockbuster is dead. NFLX stock is up 200% in the last year. What more does Netflix want? It is already one of the best stock picks[1] in most portfolios and a cult favorite among investors.

But apparently Netflix wants to not just dominate home movie viewing, but to flex its muscle with regular television programming too. At least that appears to be the case after news that NFLX has started making its own shows.

It’s a dramatic move for Netflix, especially considering Coinstar (NASDAQ: CSTR[2]) and its Redbox Entertainment[3] are looking to push into streaming video – as are Facebook[4] and Amazon.com (NASDAQ: AMZN[5]) via Amazon Prime. Apparently Netflix is more concerned with gaining more turf than defending what it currently possesses.

A Wednesday report in the Wall Street Journal[6] says that the king of home video is already diversifying its business, taking on not just traditional competitors like Redbox but the content providers like Disney (NYSE: DIS[7]) network ABC and Comcast (NASDAQ: CMCSA[8]) network NBC that it has had such a contentious relationship with.

 

And according to the WSJ report, Netflix is hardly skimping on its first foray into original programming. Looking to compete with the critically acclaimed programming offered by premium television networks like HBO and Showtime, Netflix is in talks with major talent to ensure that its original offerings will be more than your average sitcom.

 

Specifically, the company is in talks with actor Kevin Spacey (American Beauty) and David Fincher (The Social Network) who are creating an Americanized version of British political drama House of Cards.

 

Staci Wolfe, a spokeswoman for Spacey, confirmed to the WSJ that talks were indeed taking place. Deadline.com[9], reported on the series on late Tuesday and said Netflix is looking to broadcast the full 26-episode season, spending more than $100 million on securing the license to broadcast the show.

 

There has been a great deal of speculation this year as to whether or not Netflix will be able to maintain the incredible growth it saw in 2010 this year. The NPD Group found in a Tuesday report that Netflix already controls 61% of all digital movie watching. Can the company really hope to gain another 20 million users?

 

Well, original programming like House of Cards will go a long way towards capturing those consumers still relying on traditional outlets (DVD sales/rentals and cable/satellite television service) for their home entertainment.

 

The change in programming may also presage a shift in Netflix’s business model too. The company has aggressively shifted its identity to a streaming service rather than the by-mail DVD rental service it used to be. Now Netflix may shift from being a subscription-only service to an ad-supported one. In its ongoing efforts to grow its audience, Netflix continues to make strides to lower the cost of its service. (The company began offering a $7.99 per month streaming-only subscription in November.) With original programming however, Netflix will be looking to capture the broadest audience possible. With limited, ad-supported airings on its website and streaming service, Netflix could capture the broadest number of viewers for its original shows while also opening a new method for enticing new subscribers.

 

If nothing else, original programming will give Netflix yet another advantage over fledgling streaming video services like Amazon.com’s (NASDAQ: AMZN) Amazon Prime. Though Netflix share price has fallen around 12% from the 52-week high of $247.55 hit in February, it’s already recovered to the tune of 10% since Monday. Even at around $220, Netflix is still a promising buy.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.

Endnotes:
  1. best stock picks: http://investorplace.com/stock-picks
  2. CSTR: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSTR
  3. Redbox Entertainment: http://investorplace.com/31540/netflix-has-no-need-to-fear-redbox/
  4. Facebook: http://investorplace.com/33080/facebook-not-ready-to-dethrone-nfl/
  5. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  6. Wall Street Journal: http://online.wsj.com/article/SB10001424052748704164204576203262433339214.html?mod=WSJ_Tech_LEADTop
  7. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  8. CMCSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMCSA
  9. Deadline.com: http://www.deadline.com/

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