New Act for Netflix?

Now this is interesting. According to a recent HollywoodReporter article, Netflix (Nasdaq: NFLX  ) is partnering with Roadside Attractions to acquire the North American film rights to The Puffy Chair. Netflix will shoulder half the costs for selling and distributing the film, and will do the same for the ancillary marketplaces (i.e., television and home video). The Puffy Chair will be released to regular video stores in addition to Netflix's rental operation. Howard Cohen, co-president of Roadside Attractions, was quoted as being interested in leveraging "some of their [Netflix's] subscriber loyalty." The film should be out in time for the summer box office season.

The idea of leveraging the subscriber base (and I should note that Shauna LaRussa, manager of content acquisition at Netflix, stated that they will not "spam" subscribers about the project -- mailings will only be forwarded to willing recipients) is an obvious one. Going forward, the company will certainly use its database to fuel other marketing ventures and businesses. The Reporter article stated that although this isn't the first foray into partnering for content distribution, it nevertheless represents a more significant deal of its kind for the company.

And it brings up a host of thoughts for a long-term investor. Netflix is a fascinating company on many levels, especially from the point of view of its competitive edge against Blockbuster (NYSE: BBI  ) -- I mean, why go to a retail store when you can have DVDs mailed to you right at home? Even Blockbuster is conceding that online rentals are probably the wave of the future, and it's having a hard time catching up with Netflix's lead.

That's why a partnership like this is a great one for Netflix, not just because of what it offers on the surface, but also because of what's underneath the surface. If Netflix wants to have a say in the distribution of content, then I'd have to imagine it will eventually want a say in the development of content as well.

If Netflix ever did fund original movies, it would be wise to only consider small, Blair-Witch type fare, and release them exclusively to home video through its online service. In this manner, the company could further differentiate its distribution platform from Blockbuster and even Video on Demand. It would also be wise to mine the tastes of its subscriber base in an even more sophisticated manner than it currently is -- that might give it an edge in product development. That's the key -- Netflix would need hits to truly highlight its service and its exclusive offerings.

The notion of Netflix partnering to distribute content a la The Puffy Chair constitutes a smart paradigm. It gives Netflix a chance to experiment with distributing exclusive video rental content. And I think it could be a stepping-stone toward the direct funding and development of independent movies that would be offered exclusively on its rental platform, thus potentially driving sign-ups. The company knows its subscribers, so it might know what they want. Crazy thought, I know, but there are a lot of crazy movie ideas out there today -- check out W.D. Crotty's piece on movie distribution.

These related Takes are ready for their close-ups:

Netflix is aMotley Fool Stock Advisorrecommendation. Take a free 30-day trial to find out which other companies have made the cut.

Fool contributor Steven Mallas does not own shares in any of the companies mentioned. The Fool has a disclosure policy.


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