Netflix Brings Bluth Family Back

Netflix Inc.’s (NFLX - Analyst Report) Canadian subscribers can watch the histrionics of the Bluth family as the critically acclaimed show ‘Arrested Development’ is now exclusively available on Netflix. The first three seasons are available for subscribers and the fourth season will go on air in 2013.

So far, Canada is the strongest market among all of its international ventures. Netflix’s Canadian streaming service was launched in late 2010 and has seen a growing subscriber base. Moreover, Netflix reported that revenue from Canada exceeded its content expenses in the last concluded quarter (third quarter).

To build on the success that Netflix has achieved in the country, the company has added a number of TV shows and films to its streaming portfolio. The shows and films added in the recent months include ‘The Vampire Diaries’, ‘Pretty Little Liars’ and ‘Community’. Apart from these, the company had also roped in local Canadian shows such as ‘La Galere’ and ‘Trailer Park Boys’.

Going forward, we expect more content to be available for streaming for Canadian subscribers to further expand its presence in the country. However, competition from Comcast Corporation (CMCSA - Analyst Report), with its Streampix service, and Shaw Communications (SJR - Analyst Report) in the country remain the headwinds for Netflix.

Netflix’s endeavor has been to provide diversified streaming content. To accomplish that goal, the company has entered into a number of licensing agreements with big Hollywood production houses. However, the company continues to witness cost escalation due to higher license and renewal fees. Netflix needs to pay $5.0 billion for streaming content obligations, out of which $2.1 billion is to be paid within the next 12 months.

Netflix’s new and exclusive content offerings to its subscribers are the company’s biggest USP compared to some of its closest peers. Apart from recent movies and documentaries, Netflix is also boosting its original content portfolio to entice new subscribers in the U.S. and International markets.

With its own content delivery network, Open Connect, Netflix’s video library will be directly connected to Internet service providers, ensuring fast data transfer that would eventually enrich the customer experience.

We have a Neutral recommendation on Netflix over the long term. Currently, Netflix has a Zacks #3 Rank (Hold).