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Can This Be a Game-Changer for Netflix?

By Jennifer Saibil - Jun 24, 2021 at 6:17AM

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A new deal signals growth for Netflix.

Streaming exploded during the pandemic, and competition continues to heat up. Netflix (NFLX -0.08%) remains the leader in the industry, surpassing 200 million subscribers as of last year. But it's had no time to take a break, as rivals up the ante. Last week, the company announced a new content deal that should provide it with some leverage and help it keep its top spot. Let's see how.

What does Amblin Entertainment do for Netflix?

Amblin Entertainment might sound familiar to readers who enjoy watching films, and that's because it is mega-director Steven Spielberg's entertainment company, producing films such as Jaws and Indiana Jones. Netflix and Amblin have collaborated before on such projects as Jurassic World: Camp Cretaceous. The new deal is for Amblin to produce "multiple" films to add to Netflix's original lineup. This brings Netflix's content to true Hollywood-level filmmaking, putting some of its film production on par with the best.

A family sitting together on a couch and watching TV.

Image source: Getty Images.

Netflix has upped its original content creation in recent years, not only producing a lot more but also of higher quality. It made strides in time for the pandemic, where it not only saw huge subscriber growth but is facing a lot more competition for subscribers. A shortlist of companies that recently launched streaming channels includes Disney (DIS 2.21%), AT&T's (T 0.66%) WarnerMedia, and Comcast's (CMCSA 1.43%) NBCUniversal.

Netflix enjoyed a relatively competition-free environment before the pandemic, and its main concern was adding new subscribers. Its new concern is keeping them, or getting them to choose its platform instead of or along with other companies.

Disney has said that it will produce 100 pieces of content annually to show across its various channels, leading the way with its unmatched content library. Its Disney+ launch blew away expectations, gaining more than 100 million subscribers since November 2019, in addition to subscriptions for its Hulu and ESPN+ streaming channels. That's a big challenge to Netflix, which has also lost streaming content to studios that have rolled out their own streaming channels.

Roku (ROKU 0.68%) is another player that recently unveiled an original content initiative, and Amazon (AMZN -0.26%) isn't staying out of this either. It recently acquired Metro Goldwyn Mayer (MGM) Studios to keep its Prime Video streaming channel competitive. 

Is subscriber growth decelerating?

This also comes at a time when investors were disappointed with Netflix's most recent subscriber growth. The company had projected 6 million new subscribers in the 2021 first quarter, but it added close to 4 million. Although fewer subscriptions could be expected after a mammoth year when it added more than 36 million new paid subscribers, it still missed the mark on how much growth would decelerate. 

Two businesspeople shaking hands.

Image source: Getty Images.

As for the future, it's only expecting 1 million new signups in the second quarter, after 10 million in second-quarter 2020. The company said: "Subscriber figures alone tell only part of the story so it's important to also focus on engagement and revenue as key indicators of success."

Revenue was strong in the first quarter, growing 24%. Average revenue per membership increased 6%, which is another way to maximize subscriber count as it slows down, and creating new, high-quality content can work toward that goal as well.

How will it affect the stock?

Netflix has always been a company that changes to grow. It hasn't had to make any major changes to its model since it went from DVD rentals to streaming, but it's not afraid to go to new places, which is a great feature in a stock you want to own. New, high-quality content gives people a reason to sign up or stay, so it's a step in the right direction. 

Investor worries sent the stock price down after the first-quarter report, and not only is it down year to date, it has only gained 9% over the past year. The show is far from over for Netflix, making this a great entry point for new investors.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil owns shares of Walt Disney. The Motley Fool owns shares of and recommends Amazon, Netflix, Roku, and Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$249.11 (-0.08%) $0.19
AT&T Inc. Stock Quote
AT&T Inc.
T
$18.39 (0.66%) $0.12
The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$124.26 (2.21%) $2.69
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$143.18 (-0.26%) $0.37
Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$40.57 (1.43%) $0.57
Roku Stock Quote
Roku
ROKU
$84.38 (0.68%) $0.57

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