Netflix to Stream Animated Movies - Analyst Blog

Reportedly, Netflix Inc NFLX will stream animated movies owned by Sony Pictures that will include the likes of Cloudy with a Chance of Meatballs 2 and The Smurfs 2. The move will help Netflix to strengthen its footprint in the kids section amid growing competition from Amazon.com AMZN.

Video streaming companies have recognized that kids make up a significant chunk of TV show and film viewers. To capitalize on this, Netflix had launched its exclusive Internet video streaming service for kids, “Just For Kids” way back in 2011.

Netflix went on to sign partnership agreements with the likes of DreamWorks Animation SKG, Inc. DWA in Feb 2013 to remain competitive in the video-on-demand market. Based on the partnership it streamed original series, Turbo: F.A.S.T. (Fast Action Stunt Team), exclusively for kids.

Netflix's partnership with Walt Disney's DIS Marvel Entertainment will bring at least four new 13-episode series and a mini-series based on characters such as Daredevil, Jessica Jones, Iron Fist and Luke Cage on Netflix, beginning 2015. This will further help Netflix to gain market share in the kids and teenagers section in the long run.

Over the last one year, Netflix has entered into partnerships with major film studios and production houses, which include The Wachowskis (creators of The Matrix trilogy), J. Michael Straczynski (Babylon 5), Gaumont International, Sony Pictures and The Weinstein Company TWC, apart from Walt Disney and Dreamworks.

Based on such a deal, Netflix secured rights to stream new episodes of a spin-off of the hugely popular Breaking Bad series called Better Call Saul, which will debut on AMC in Nov 2014. The new series is expected to premiere on Netflix by late 2014, reflecting the company's continuing focus on improving customer engagement.

These deals have helped Netflix to not only increase its content portfolio, but also to move into new segments such as comedy, political thrillers, autobiographies and horror.

This has been the primary reason behind its success in the recent times. Netflix added 11.89 million paid streaming subscribers over the last 12 months. Total streaming subscriber base increased 12.04 million year over year to 48.36 million, primarily driven by expanding content portfolio that includes original and popular productions such as Arrested Development and House of Cards.  

International expansion is another key growth driver for Netflix. The company recently announced its plans to enter the markets of Germany, Austria, Switzerland, France, Belgium and Luxembourg by the end of 2014.

However, starting operations in a new country demands huge investments and considerably increases marketing and general and administrative expenses. Netflix, therefore, expects the international segment to continue to report loss for the rest of 2014.

Nevertheless, Netflix's recent price increases (for both domestic and international new users) will help the company to offset these higher expenses. Moreover, the company's ever-expanding content portfolio and focus on improving customer engagement will continue to boost subscriber base.

Currently, Netflix has a Zacks Rank #3 (Hold).