Is Netflix Headed for a Slowdown?

Is Netflix Headed for a Slowdown?

Shares of Netflix are up more than 160% year to date. However, the video-streaming stock could be headed for a slowdown if the company's big bet on children's programming doesn't play out the way Netflix previously anticipated.

A snail of a tale
Earlier this year, Netflix closed its largest original first-run content deal with DreamWorks Animation . Part of this multiyear contract was for a Netflix original kids series based on DreamWorks' animated flick Turbo, which at the time had not yet been released. Unfortunately, the deal doesn't look so hot anymore given the movie has been a major disappointment at the box office.

For its opening weekend, Turbo's sales were anything but turbo-charged. In fact, the moviebrought in a meager $21.5 million. That's even more upsetting when compared to Comcast's Universal Studios' Despicable Me 2, which brought in more than $183 million in its first five days.

Shares of DreamWorks nose-dived on worries that it may be faced with a $50 million writedown on Turbo, according to Bloomberg. Not surprising since DreamWorks spent around $135 million producing the feature.

What now?
This could cause serious problems for Netflix as it tries to entice kids to watch its animated series based on the movie. Not to mention, there's added pressure since it didn't renew its contract with Viacom earlier this year. Without Viacom, Netflix no longer has exclusive rights to popular children's shows including Dora the Explorer and Blue's Clues.

Nevertheless, the streaming giant is playing it cool. In an interview with CNBC, Netflix's Chief Content Officer Ted Sarandos explained, "[T]hey translate to very high viewing on Netflix, even in movies that don't perform as well at the box office." And there's another reason for Netflix optimism. A rate card sets the fees that Netflix pays for those films relative to their performance in theaters. Therefore, a slow start for Turbo could mean a sweeter deal for Netflix down the line.

In the end, Netflix has a lot riding on children's content. Fortunately, the Netflix-DreamWorks content deal includes 300 hours of original kids programming. This means that even if the latest DreamWorks flick is a flop, Netflix will have plenty of other content on hand to attract younger viewers.

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Fool contributor Tamara Rutter owns shares of Netflix and The Motley Fool recommends DreamWorks Animation. It recommends and owns shares of and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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