Netflix (NFLX) Expands to Movie Distribution, Partners TWC

After phenomenal success in original productions, Netflix Inc. (NFLX) is venturing into movies. The company recently signed a distribution deal with The Weinstein Company (“TWC”), which will enable it to stream the sequel of Crouching Tiger, Hidden Dragon simultaneously with the film's release at selected IMAX theatres on Aug 28, 2015.

The current distribution deal is expected to cover a number of movies in the near future. TWC is known for producing award-winning movies targeting a niche audience. Netflix already has a multi-year licensing deal with the movie studio, under which, it will exclusively stream TWC-produced movies on a first run basis from early 2016.

Per The New York Times, the distribution deal will help Netflix to change the “traditional method for releasing films — first in theaters then, typically several months later, for streaming.” However, this will be quite challenging for Netflix as none of the big studios or theater chains are involved in the process.

Nevertheless, we believe that the new venture will boost Netflix's growing subscriber base. An engaging content library offering an eclectic mix of original and third-party shows is the biggest growth catalyst for Netflix. The company continues to expand its content portfolio through licensing deals.

Under a deal with TWC and Endemol, Netflix recently acquired the rights to the first two seasons of British gangster drama Peaky Blinders. The company has also acquired rights to the popular Sony Pictures-produced NBC drama The Blacklist and CBS Corp's CBS drama series Zoo.

Apart from adult shows, Netflix is increasingly focusing on steaming kids' shows, which have tremendous growth potential. The company itself recognizes the fact that kids make up a significant chunk of TV show and film viewers. To attract kids, the company is working with DreamWorks Animation to include original cartoon series in the service and has a similar deal with Mattel MAT.

Most recently, European animation studio Rainbow and Netflix announced a new kid series, Winx Club WOW: World of Winx, exclusively for Netflix subscribers including France and Germany. The first of the two all-new seasons will be available by early 2016.

Netflix is also expanding its Super Hero series. The company recently bought the exclusive video-on-demand rights for Fox's drama series Gotham. Netflix's partnership with Walt Disney's DIS Marvel Entertainment is set to 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.

Although rising costs related to content and international expansion are a major headwind, we believe that fast growing subscriber base will drive the top line this year. Additionally, price increases (for both domestic and international new users) will help Netflix to offset higher expenses in the near term.