Markets

Netflix TV Series Could Poison Ties With Studios

By Conrad Aenlle

Updated on: March 19, 2011 / 3:53 PM EDT / MoneyWatch

Netflix shareholders saw their high-flying stock (NFLX) lose nearly a quarter of its value in less than a month on concern that companies like Facebook and Amazon.com (AMZN) were getting into the video-streaming business. The stock recovered a big chunk of what it had lost when Netflix announced plans to stream original content, a TV series called "House of Cards" starring Kevin Spacey.

I questioned whether the $100 million venture would allow Netflix to overcome the intense competitive pressure that the company is under and set the stock back on a long-term upward path. Maureen Ryan, a highly respected television critic for AOL, has doubts about the deal, too, from the standpoint of the relationships that Netflix has with content producers.

Ryan wonders if it's wise for Netflix to create its own content while its business is based on distributing the content of others - effectively working both sides of the street. Here is some of what she said:

"Netflix going from content-delivery system to a content-creation company raises a lot of questions in my mind, but the primary one is this: Won't this lead to a lot of studios taking their shows and movies off Netflix at some point? I can't imagine they're too happy about facing competition from a company they'd essentially viewed as a pipeline into people's homes.
"As many media reporters have noted, the companies that do business with Netflix sure like cashing the company's checks. But it isn't the only game in town, and many firms, most notably Time Warner, had already begun looking askance at Netflix, which has moved aggressively into the streaming realm. Analysts have said that when certain Netflix deals come up for renegotiation, the company may well have to pay a lot more than it has in the past for the rights to the shows and movies in its large video library.
"Now that Netflix is going to directly compete with the studios, I'm wondering if some studios will let those deals lapse entirely. 'You're going to compete on our playing field?' I can picture them saying. 'Fine, we're going to pick up our ball and go home.' "
If Ryan is right - and she makes a lot of sense - and Netflix suddenly finds itself facing higher costs or a drastic reduction in the amount of content it can offer subscribers, it greatly worsens the outlook for the stock.

Come back Tuesday for a look at five companies in the entertainment distribution business whose stocks could be on the same shaky footing as Netflix's.