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This Box Office Disaster Is Bad News for Netflix

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As the video streaming wars continue to heat up, companies such as and Netflix  (NASDAQ: NFLX  ) are increasingly trying to find ways to differentiate themselves from their competition.

And for the industry leaders in video streaming over the past two years, those efforts have increasingly involved building a world-class repertoire of original series.

For Netflix, anyway, this move seemed to be paying off in a big way up until last week, after its programs received no less than 14 Emmy nods, including nine for House of Cards, two for Hemlock Grove, and even one for Arrested Development, which the company recently revived for an exclusive fourth season.

Then again, that didn't exactly help Netflix stock Tuesday, which is when it fell more than 6% after the company disappointed investors with weaker-than-expected second quarter subscriber growth.

What's more, as fellow Fool Blake Bos pointed out in March, original content can often prove undeniably expensive, so there's much to be said for the merits of signing deals for lower-cost existing programming -- of which Netflix incidentally also boasts plenty.

Netflix placed this bet too early
But what happens when some of that expensive original content doesn't perform as anticipated?

Thanks to last weekend's dismal box office debut of DreamWorks Animations'  (NASDAQ: DWA  )  Turbo, we may get the chance to find out.

Image source: DreamWorks.

Remember, as part of Netflix's huge content deal with DreamWorks announced back in February, the animation specialist agreed to create an original kids' series exclusively for Netflix, based on the feature film, and aptly named Turbo F.A.S.T.

So what's the problem? 

If Turbo's horrific $21.3 million opening weekend take is any indication, kids may simply not be all that interested in the snail-racing flick.

And considering Netflix probably promised DreamWorks a hefty sum to ensure that the series would be offered only alongside its signature red logo, something tells me the company won't be allowed to back out of the deal, as the animator undoubtedly wants to continue milking every possible penny out of the brand in an effort to recoup its estimated $135 million production budget.

Then again, perhaps Turbo is exactly the kind of show that could do exceedingly well on a streaming $8-per-month service like Netflix, so maybe this won't be a huge problem for the King of Streaming in and of itself.

The silver lining
On that note, Netflix's presumptuous bet on an unproven movie could also serve as the perfect wake-up call it needs to finally become more careful about how it spends its money promoting.

After all, from an investing standpoint, hosting all the streaming content in the world won't mean much to shareholders if Netflix can't master the seemingly simple task of keeping expenses in check.

Of course, we also need to remember Netflix isn't the only company involved in the battle for your living room.

The future of television begins now, with an all-out $2.2 trillion media war that pits cable companies such as Cox, Comcast, and Time Warner against technology giants such as Apple, Google, and Netflix. The Motley Fool's shocking video presentation reveals the secret Steve Jobs took to his grave and explains why the only real winners are these three lesser-known power players that film your favorite shows. Click here to watch today!

Read/Post Comments (29) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 27, 2013, at 10:42 AM, ckgod wrote:

    You know that it's totally different for people, especially kids, to watch TV in house and going to movie house don't you? Even House of Cards made into feature film may not be that huge a hit.

  • Report this Comment On July 27, 2013, at 11:09 AM, Asmodeus1971 wrote:

    I really need to stop reading Fool's post. Sorry but this movie got mostly Go ratings on Fandango and even on IMDb got a 6.3 and mostly favorable reviews from users. It may not be a great movie but by those numbers it isn't a bomb. You can't judge by box office numbers in the summer time, too many movies and people just don't have the money to see all of them. Turbo is just in the middle of a pack of animated movies that were released in late June, July and August. Others are established franchises like Monsters U, Smurfs 2, Despicable Me 2 and others so the flop factor is more timing probably than quality.

  • Report this Comment On July 27, 2013, at 11:22 AM, garystarr wrote:

    orange is the new black is great and house of cards i just started watching..the bottom line is cable is horrible..time warner does not offer nfl channel so screw them ..ORANGE IS THE NEW BLACK IS GREAT REALLY REALLY GREAT I DROPPED CABLE WILL NEVER GO BACK

  • Report this Comment On July 27, 2013, at 11:28 AM, sbbrewerst wrote:

    My kids can't wait to see Turbo; we wait for it to come out to rent though. I'm not paying ridiculous theater prices.

  • Report this Comment On July 27, 2013, at 11:41 AM, CharlieTX wrote:

    Must be a really slow news day to report that some shows are more popular than others.

  • Report this Comment On July 27, 2013, at 11:53 AM, brandy5536 wrote:

    My kids are waiting to see it also. The prices are just are unreal. The ticket prices even if fine if could afford, the drinks and popcorn make it i to high. This world incomes are becoming lower while prices are rising. And our government gets richer reminds you of something.

  • Report this Comment On July 27, 2013, at 12:01 PM, utterp wrote:

    I was introduced to The Motley Fool from an instructor a few years ago. And over the time, especially recently, I have noticed the the staff of The Motley Fool have a thing against NetFlix. They seem to put Netflix down left and right. I find myself wondering which cable company helps pay their paychecks. I find it sad that what people write and call or consider an article is nothing more than a highly opinionated, one sided, and fact-less long blog.

  • Report this Comment On July 27, 2013, at 12:27 PM, wcjones78 wrote:

    Who is Motley Fool any way? They always have negative news about Netflix. It seems to me they are betting Netflix fail for some reason. I guess someone from the big three cable company owes Motley Fool or has a control interest. I am sick of paying Comcast cable $ 185.00 for programs I don't watch. And Direct v is not reliable. I hope Netflix, Amazon, Hulu make it. So I can cut cable and just watch Netflix and Hulu.

  • Report this Comment On July 27, 2013, at 12:27 PM, texaswebers wrote:

    Netflix - please bring back the South Park series. You disappointed our household big time when this was abruptly discontinued earlier this year.

  • Report this Comment On July 27, 2013, at 1:36 PM, DESERTVISTA wrote:

    I dumped all my satellite movie channels and went to Netflix. Best 8 bucks a month I've ever spent. Keep up the good work Netflix!! Some people get so wrapped up with ratings, etc. Let the production be judged by the viewers, not a bunch of so called experts telling us what we like or don't like....

  • Report this Comment On July 27, 2013, at 1:53 PM, antipolis wrote:

    I am tired of reading Motley Fool's negative headlines, especially when they are repeated over and over again in other investment blogs. Steve Symington can't beat up Dreamworks or Netflix enough. Dreamwork's animated film Turbo has gotten off to a slow start, but give it time. Symington's shallow analysis and bias reporting is tiresome. My kids loved Turbo.

  • Report this Comment On July 27, 2013, at 1:53 PM, DanCooper76 wrote:

    I don't know. My two young boys liked the movie. Moreover, my oldest was excited when I told him Netflix would soon have a Turbo cartoom series. Bottomline is a 7 y/o can't drive himself to the movies and pay! Maybe Dreamworks dropped the ball in advertising? I would advise a wait and see attitude.

  • Report this Comment On July 27, 2013, at 1:55 PM, american1975 wrote:

    Hollywood is committing suicide by early release of movies from theater to other platforms.

  • Report this Comment On July 27, 2013, at 1:55 PM, jhs39 wrote:

    This is kind of a dumb post by someone who doesn't know anything about Hollywood or the home video business. Netflix wasn't involved with the budget for Turbo and won't be losing any money due to its theatrical run. On the other hand, children's films tend to do exceptionally well on home video, including children's films that don't do particularly well in theaters. Even Dreamworks was shocked at how well Rise of the Guardians performed on video after tanking in theaters. Netflix will be fine with Turbo.

  • Report this Comment On July 27, 2013, at 1:57 PM, watscard49 wrote:

    I love Netflix a lot , I like Amazon too , just got on it's site, and then , I also like Hulu Plus, those three are my main ones, I feel the Cable Companys are just ripping you off, The Big Three, Time , Direct , Dish , I believe the younger generation will go to that , I think the Cable Company's are going to lose BIG!!!!!

  • Report this Comment On July 27, 2013, at 2:06 PM, richyrich561 wrote:

    NETFLIX should rename themselves POP-UP ANNOYING PAIN IN THE ASS NETFLIX. The ONLY pop up ads I EVER get anymore is from NETFLIX.

    I love watching them FAIL! Pains in the ass!

  • Report this Comment On July 27, 2013, at 2:18 PM, Squeegee2974 wrote:

    The Motley Fool proves there is truth in branding. Wise up and get a clue, said Mr. T.

  • Report this Comment On July 27, 2013, at 3:26 PM, cjb44 wrote:

    Ha, the bad box office is because of Netflix. I stopped going to the movies 3 years ago. I wait for movies to come out on BluRay or Streaming then watch them at home on my home theater. Why spend $12 per ticket when I can wait 6 months and watch it at home and not have to deal with the theater experience of loud patrons, sticky floors and so on.

    I'll see all the movies that are bombing, just not in the theater.

  • Report this Comment On July 27, 2013, at 3:32 PM, trekingirl wrote:

    Never heard of Turbo until today. Almost all media ads miss me. I fast forward the DVR thru commercials. I don't have kids. I rarely go to the movies.Too pricey with admission, pizza, bucket of beers and waitress tip. I spend there in 2 hours what I spend for an entire day at Six Flags or Sea World. Would rather go there for the day than sit for 2 hours in a theatre. Like everyone else nowadays, I have a huge flatscreen and watch movies from home. I can't wait to see Turbo on Netflix. It looks cute.

  • Report this Comment On July 27, 2013, at 3:36 PM, trekingirl wrote:

    i think I will buy some Netflix stock when the market opens Monday. It'll jump right back up immediately and I will make an easy 6% in a very short time.

  • Report this Comment On July 27, 2013, at 7:51 PM, Einstein62 wrote:

    The only disaster here is that Netflix hooked their wagon to Wall street. No profits are enough. They get sucked into the black hole and the Magical hand reappears asking for more. Just like magic.

  • Report this Comment On July 27, 2013, at 8:01 PM, codydefrate wrote:

    I don't think Turbo has done poorly in the theatre because people don't want to see it. I think it's the cost that plays into it. If you are taking your kids, and most theaters don't have reduced pricing for kids, it's gonna get expensive really quick. Something like Netflix makes it easy, and affordable. I know my kids want to see Turbo!

  • Report this Comment On July 27, 2013, at 8:41 PM, romikk32 wrote:

    "movies"? Did you say "movies"?? No chance of movies affecting Netflix...they don 't HAVE any, and are trying hard to become yet another meaningless cable company. I have never seen a company with SO much going for it TANK so badly..yet they still gove this bunch of maroons leadership, and no one securing new movie content. No wonder Red box is gaining on them

  • Report this Comment On July 27, 2013, at 9:41 PM, Wasmus88 wrote:

    All due respect to Asmodeus1971, but the thing that you have to remember about the film industry is it's a business. A flop is something that does not make money. That does not mean that a person should not watch the movie indeed many of the movies that are nominated for artistic awards are low grossing, however if a film does not recoup it's budget it is a failure and has very little chance of getting a sequel or becoming a franchise. Also the reviews from the major critics are mixed, while I agree that this does not necessarily translate well in the real world. It does not bode well for the film either, hopefully Netflix works on developing a better show than film.

  • Report this Comment On July 27, 2013, at 11:13 PM, Dozmill9 wrote:

    I never had cable due to the price, so i signed up with Netflix three years ago and loving it, I told others about it, now I think Netflix owe me some money.

  • Report this Comment On July 28, 2013, at 3:30 AM, razzma wrote:

    Why are the articles on this site literally foolish?

    Not in the good way they coined it.

    First of all...probably taking the kids to everything that has been release in the last month is just too much. This would certainly have viewers on Netflix because parent use it to keep the kids entertained and take a tablet everywhere. This just adds to what the kids can watch, original Dreamsworks cartoons.

  • Report this Comment On July 28, 2013, at 9:40 AM, Snakepit456 wrote:

    Netflix is a great value for the money and House of Cards is a great series, but Hemlock Grove? Are you kidding me, if the confusing plot doesn't get to you, than the insipid writing surely will.

    The big question of course is....WHERE IS SEASON TWO OF LILLYHAMMER?

  • Report this Comment On July 28, 2013, at 3:20 PM, mysticgraystar wrote:

    My family dropped Dishnetwork earlier this year. We tried both Netflix AND Amazon.

    Netflix was the ONLY subscription that would not continually reload, had better content than Amazon, and was a better price!

    It took us 3 hours to watch a 1 hour program through Amazon, on average!

    We watch MORE tv programing with Netflix than Movies (there aren't that many NEW movies to choose from with Netflix); the only thing we miss is local news.

  • Report this Comment On July 28, 2013, at 11:39 PM, dannystrong wrote:

    The problem with "Turbo" is it is obviously a remake (an absurdly obvious remake, at that) of "Cars". I suspect that Pixar's lawyer division had some serious thought about suing for copyright infringement. Then they realized it would just point up how much their "planes" is a remake of "cars" as well.

    On another level, movies targeted at kids are always a crapshoot. "Fantasia" failed miserably, yet Disney's other animated products did very well indeed. It might well be that, if properly written, the follow-on might build a word-of-mouth audience (if written by the same gang as 'turbo', of course, it could be wretched.) Netflix could yet come out with a jewel, or the episodes might end up on youtube as a very expensive teaser.

    (Disclaimer: not a stockholder of disney, pixar, dish, netflix, dreamworks, sony, or exxon-mobile.)

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