Netflix And Its Curious Relationship With TV Broadcasters

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Netflix with its growing popularity has angered some of the big media firms as more and more users are viewing their favorite shows through the service rather than going to broadcasters. Despite this, Morgan Stanley believes the studios will not stop selling their content to the streaming firm.

A curious relationship with TV

On whether shutting down Netflix would be positive for the pay-TV business, Morgan Stanley says that it could help TV firms’ margins. But ratings may continue to erode as other players such as Hulu and Amazon are developing large streaming businesses capable of denting TV viewership.

Netflix shares quite a unique relationship with media firms. On one hand, it presents a threat to their existence, and at the same time, it is a major customer of content syndication rights. Last month, Rupert Murdoch, owner of 21st Century Fox, said, “Certainly the business rules around how we sell to SVOD providers are changing and our thinking is evolving.”

Disney Chief Executive Bob Iger has a more friendly approach towards the giant streaming firm. During the quarterly earnings call in August, Iger said Netflix is “more friend than foe because they’ve become an aggressive customer of ours.”

Growing importance of originals for Netflix

Morgan Stanley analysts expect Netflix to invest around $5 billion in 2016 into content, excluding originals. Almost 40% of the total spending will be directed towards the U.S., the analysts say. The firm notes that original content is getting more important to the streaming firm, adding that the company will invest around $1.3 billion on original programming in 2016. Such an amount will be more than HBO’s investment and very near to the prime time programming costs of big broadcasters, excluding sports, the analysts estimate.

Following the recent price hike by Netflix by $1 to $10 a month, Morgan Stanley has raised its estimate for average revenue per paid user for 2016 to $9.25 from $8.90. The firm has an Overweight rating on the stock with a price target of $135. At around 10 a.m. Eastern today, Netflix shares were down 1.27% at $111.96. Year to date, the stock is up by almost 130%, while in the last year, shares are up by almost 80%.

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