Netflix Is Investing for the Long Haul

Netflix Is Investing for the Long Haul

Netflix is scoring content deals one after another in its ongoing effort to be a larger player in the global entertainment space. The company recently added a lot of content for its Canadian market, and is adding more originals to bolster its ambitions to be top dog in the Internet TV space. Netflix is moving ahead and investing heavily to grow its international subscriber tally.

Acquiring global and regional content
With more than $1.1 billion of cash in its balance sheet, Netflix is constantly looking to add more content for existing subscribers, plus attract new members around the world. Netflix is already profitable in its Canadian segment, and the company is building on that momentum by signing a number of new deals for Canadian households.

The company recently added several local Canadian shows from the Canadian Broadcast Corporation. In addition, Netflix struck another deal with Comcast's NBC to add a number of popular films and TV shows, including Suits and Downton Abbey, for the Canadian market. Netflix will likely adopt this strategy of adding a wide assortment of content in different regions after it achieves profitability in that particular market.

Netflix has also been adding many one-off documentaries and comedy specials from popular artists, available on Netflix only. It added comedy specials from acclaimed comedians like Russell Peters and Aziz Ansari, and it is also adding a documentary on Mitt Romney's presidential campaign, which will air in January 2014. Such a wide breadth of Netflix-only shows will drive the company's churn rate to record lows and grow its customer base considerably.

Well ahead of peers
Netflix's lead rival in the Internet TV space, Amazon has a much smaller subscriber base. Amazon is still mum on the number of subscribers it has for Prime Video, but Amazon's Jeff Bezos disclosed in the last earnings report that Amazon added "millions'' of Prime subscribers.

Assuming that Amazon Prime has 15 million paying members, it would be extremely difficult to extrapolate whether the customers picked up a Prime subscription for the fast shipping or for the video content. Amazon recently upped the minimum price for free shipping from $25 to $35, which might have been a major contributor encouraging millions of Amazon shoppers to sign up for Prime.

However, Amazon is still investing heavily on Prime Video. The company recently unveiled a number of original shows, but reviews were less than stellar. But, Amazon is still surging ahead and building more original shows, plus signing content deals with more studios. However, for now, Netflix is significantly ahead of Amazon in the Internet video space, and that lead is almost certain to remain intact for the foreseeable future.

Building a cult fan base
Netflix had phenomenal success developing original shows in 2013, and the company is building on that momentum. The company is about to air the first season 2 of a Netflix original, Lilyhammer, in mid-December. Additionaly, the company will debut season 2 of the Emmy-winning political drama House of Cards in February 2015.

After winning the Emmy's, House of Cards has likely seen an increase in viewership on Netflix, which will enable the company to grow the fan base for the intriguing political drama. This strategy of developing seasons for an audience is in line with HBO's strategy and will pave the way for a future price increase.

Some of the most popular shows on TV, like AMC's The Walking Dead and Breaking Bad, have steadily built a large audience after their first seasons, once those shows where available on video-on-demand. As a result, subsequent seasons of Netflix originals enable Netflix to develop a broader dedicated audience for shows like House of Cards and Orange is the New Black.

However, not all shows have been lucky. AMC dropped The Killing for the second time at the end of season 3 and cut Low Winter Sun after its first season. But, Netflix is reviving shows with a built-in audience for its original library. Netflix recently signed an agreement for AMC's cancelled show, The Killing. AMC dropped the show because ratings were below expectations. Now, Netflix will bring a fourth and final season, available exclusively on Netflix, which should be a great boost for Netflix's original strategy.

Going forward
Netflix is doing a fantastic job of investing heavily in content for its subscribers. The company is spending a lot of money producing expensive original shows in an effort to build the franchise. Netflix is dedicated to delivering a great experience to its International subscriber base and making customers happy. The price and value of a Netflix subscription is increasing, which in turn will enable the company to add more subscribers in the future, mostly from the International segment.

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Ishfaque Faruk owns shares of Netflix and AMC Networks. The Motley Fool recommends, AMC Networks, and Netflix. The Motley Fool 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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