Avengers, Assemble -- on Netflix!
Netflix (NAS: NFLX) often takes flak for the less-than-impressive quality of its streaming library. You can get pretty much any movie you want from the DVD and Blu-ray service. The instant gratification of streaming, however, tends toward older titles and TV shows.
The company isn't sitting on its hands, though. Today, Netflix announced a bevy of high-quality movies for its streaming service -- some springing into action immediately, and others coming up shortly.
Where's the beef?
First off, Netflix brags of a basket of superhero flicks led by Walt Disney's (NYS: DIS) Marvel Entertainment. Thor just landed in your favorite streaming device, followed by Captain America in July. Rounding out the action-packed summer slate, there's Transformers: Dark of the Moon from Viacom (NAS: VIAB) studio Paramount and Lions Gate's (NYS: LGF) Conan the Barbarian.
This is not a solid-gold slate. The star-starved and R-rated Conan only made back about half of its budget in global ticket receipts, but the Marvel heroes and battling robots more than make up for that shortfall. These movies were all released in the last 13 months and have combined for a cool $2 billion in worldwide ticket sales. Furthermore, the appearances of Thor and Captain America all but guarantee that The Avengers will swoop into Netflix after its record-breaking theatrical run. So far the box-office king sits on $1.4 billion in global sales.
That's a crowd-pleasing summer slate, though hardly a collection of best-in-show dramas. For that, turn your gaze to this week's new releases.
In a quiet onslaught of Miramax content, Oscar winner The Cider House Rules and Academy two-bagger Life Is Beautiful quietly march onto the digital stage this weekend. Miramax doesn't do big, bold action, but it boasts a deep catalog of high-class favorites. Netflix caters to a couple of very different demographics here.
But that's not all, and the third content injection is a bit of a shocker.
Can we be "frenemies," Warner?
If you've followed the constant stream of Netflix vitriol flowing from Time Warner (NYS: TWX) CEO Jeff Bewkes, you know that the HBO parent doesn't love digital distribution at all. In famous attempts to disparage the digital movie service, Bewkes has likened Netflix to the Albanian army and a flying hamburger.
And yet, Netflix just signed a deal to stream Pretty Little Liars and The Lying Game -- two TV productions from Time Warner Home Entertainment that air on Disney-owned ABC family.
Bewkes may not like Netflix, but some of his underlings seem to disagree. Kevin Tsujihara, president of Warner's home entertainment group, was not quoted in the press release, but I see his fingerprints all over this agreement. Tsujihara saw the digital light early on. He was instrumental in Warner's acquisition of social movie site Flixster and the birth of the flawed yet welcomed UltraViolet digital delivery system. He's also pushing hard for more responsive video-on-demand releases. These are all moves in the right direction.
Give this man the reins to HBO, and Netflix would suddenly have some very real and direct competition on its hands -- or perhaps a buyout offer. Either way, the cold war we have today between Netflix and HBO would be forgotten. Rumor has it that Tsujihara might be up for a promotion at the end of 2013, when Warner Bros. chief Barry Meyer steps down. Keep an eye on this guy.
Anyway, I'm guessing that Tsujihara pulled some strings to get this exclusive multiyear deal off the ground. There's value in secondary distribution contracts, and Netflix offers the largest audience you'll find outside the cable industry.
Signs of life
The billions of dollars that Netflix spends on content licenses are paying off. You don't get everything at once, but the company couldn't afford $3.7 billion of content licenses coming due at the same time. Instead, you get a fairly slow trickle of popular and/or quality content as the years roll by. Netflix is setting itself up for massive profits when global subscriber growth catches up to the content spending, and I see a multibagger in less than five years here.
The stock may lag in 2012, though. Investors are wary of content spending and worried about slowing subscriber growth. A stronger streaming library is just part of the strategy, paired with low overhead costs outside the licenses and rapid global expansion. If you don't have the patience to see this long-term winner unfold, Foolish analysts have found a more promising stock for your portfolio right here, right now. Learn all about "The Motley Fool's Top Stock for 2012" in a special report -- free for a limited time.
At the time this article was published Fool contributorAnders Bylundowns shares of Netflix and has also created a bull call spread position on that stock, but holds no other position in any of the companies mentioned. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. The Motley Fool owns shares of Netflix and Disney.Motley Fool newsletter serviceshave recommended buying shares of Netflix and Disney. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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