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Netflix (NFLX) Inks $350M Plus Renewal Deal With VFX Firm DNEG

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Netflix (NFLX - Free Report) recently signed a multi-year agreement with DNEG, a leading technology-enabled visual effects (VFX) and animation company, for the creation of feature film, television, and multiplatform content.

Per the non-exclusive agreement, Netflix has agreed to assign projects to DNEG worth a minimum of $350 million of its services over the term, which may be increased if certain project award milestones are achieved.

DNEG is working with Netflix on a number of upcoming projects, including Stranger Things Season 4, Rian Johnson’s Knives Out 2, fantasy action-dramas The School for Good and Evil and Avatar: The Last Airbender, and upcoming fantasy comedy-adventure Slumberland from director Francis Lawrence.

In addition, DNEG Animation is providing animation services for the LGBTQ+ animated feature film Nimona, slated to be released by Netflix in 2023.

Growing Efforts to Aid Subscriber Growth

Animation has gained significant popularity, thanks to the pandemic-induced disruptions that halted the production of live-action programming. Adult-oriented animation shows like Big Mouth, Arcane: League of Legends (from Netflix), Hit-Monkey (from Marvel), Chicago Party Aunt (another Netflix show) and Fairfax (Amazon prime video) have attracted viewers worldwide.

Last month, Netflix renewed the seventh season of Big Mouth, a half-an-hour adult animated comedy. The sixth season of Big Mouth will premiere later this year.

Netflix also renewed Big Mouth spin-off, Human Resources, for a second season. The critically acclaimed series premiered earlier this year.

However, Netflix is laying off about 150 members of its staff in a move to cut costs that comes on the heels of the streaming giant recording a drop in subscribers for the first time since 2011. The layoffs come just days after Netflix’s first-quarter 2022 earnings, which saw the company lose 0.20 million paid subscribers globally against the addition of 3.98 million in the year-ago quarter, missing its guidance of 2.5 million paid-subscriber additions.

Last month, Netflix laid off a number of employees at Tudum, a website that promotes movies and TV shows for the streaming service, as part of a broader restructuring of its marketing department.

Netflix now expects to lose two million paid subscribers in second-quarter 2022 compared with the year-ago quarter’s addition of 1.54 million, reflecting stiff competition, the unfavorable impact of account sharing, sluggish economic growth, increasing inflation, the Russia-Ukraine conflict and some continued disruptions from COVID-19.

Competitors like Disney (DIS - Free Report) are also expanding into international markets. Disney+, as of Apr 2, 2022, had 137.7 million paid subscribers compared with 103.6 million as of Apr 2, 2021.

Meanwhile, Comcast’s (CMCSA - Free Report) Peacock, ended the first quarter of 2022 with 28 million monthly active accounts, up from the 24.5 million Comcast reported for the platform at the end of 2021.

Apple’s (AAPL - Free Report) streaming service, Apple TV+, is gaining recognition, with Ted Lasso winning multiple Emmy Awards and, most recently, CODA winning three Academy Awards. This is expected to boost Apple TV+’s viewership.

Netflix expects to end the second quarter of 2022 with 219.64 million paid subscribers globally, indicating growth of 5% from the year-ago quarter.

Netflix is leaving no stone unturned to boost subscriber and revenue growth in the densely populated streaming space.

The streaming service has also cut a number of in-development animated projects, including Wings of Fire from executive producer Ava DuVernay, a preschool series called Antiracist Baby and With Kind Regards From Kindergarten due to creative troubles.

Apart from animated content, Netflix is focusing on family shows to keep viewers engaged. The company recently inked a deal with Skydance to produce a reimagination of the successful 2001 Spy Kids franchise.

This Zacks Rank #3 (Hold) company is also expected to bring a plethora of family-oriented content in the near term. The slate includes We Can Be Heroes, YES DAY, Enola Holmes 2, and The School for Good Evil. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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