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3 Reasons Why Netflix Is Thinking Inside the Box

By Rick Munarriz – May 19, 2016 at 1:43PM

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The leading video service teams up with a giant Spanish-language broadcaster to promote some of its relevant shows.

Image source: Netflix.   

It may seem odd to see Netflix (NFLX) teaming up with a major TV network to get its content distributed through traditional television, but there's a method to the madness behind the dot-com darling's new partnership with Univision.

Univision announced on Tuesday that it will be working with Netflix on three Spanish or Spanglish shows to air on linear television.

  • The first season of Narcos -- the gritty mini-series detailing the rise and fall of Pablo Escobar -- will air on Univision's flagship channel.
  • Club de Cuervos -- the first Spanish-language series to stream on Netflix -- will be working its way to Univision's UniMas channel.
  • Finally, we have both parties coming together to produce a series based on drug lord and escape artist  El Chapo. The series will air in the U.S. next year, followed by Netflix availability. Netflix will debut the series on its platform outside of the U.S. market.

It's a gamble. Netflix making its content available through traditional platforms could devalue its own namesake service. However, it's ultimately a brilliant move in other ways, making this seemingly retro push smarter than you probably think.

1. It's a smart financial move

The actual terms of the deal weren't disclosed, but obviously taking on a coproduction role in El Chapo will make it less risky financially for Netflix. It also stands to reason that Univision isn't getting critically acclaimed content for free in first seasons of Narcos and Club de Cuervos

Netflix had $12.3 billion in content streaming obligations on its books as of the end of March. It can afford to keep ramping up those commitments as its popularity grows, but it never hurts to find new ways to cash in on content or make quality programming cheaper.

2. Netflix now has the mother of all trailers

It's not a coincidence that Narcos will air on Univision later this year, just before the second season rolls out on Netflix. It's the same strategy being used with Club de Cuervos.

Netflix has been on the other hand of this situation too many times. Producers of Mad Men, Walking Dead, and other shows have experienced a spike in viewership for the subsequent seasons after making earlier shows available through Netflix. Now it's time for Netflix to turn the tables.

Folks will watch the one or both shows through Univision, become engaged, and sign up for Netflix to catch the second seasons. This is Tom Sawyer getting other kids to pay to whitewash his fence. Hollywood pays Univision good money to promote upcoming movies in 30-second slots. Netflix is going to get hours of promotional activity.

3. Reaching the unreachable

Univision announced the Netflix partnership on Tuesday, just as it was entertaining potential advertisers with its up-front presentation. Univision points out that Latinos are a unique niche audience for marketers because 92% of its viewership is taking place live. This isn't the same way that English-language content in the U.S. is being consumed with folks catching it on DVRs, streaming, or on demand. That's what advertisers like to hear, but it's also sweet music for Netflix because it's an audience that is much earlier in the migration to streaming.   

There are plenty of reasons why Latinos in the U.S. aren't likely to be big Netflix subscribers now. It could be the lack of content in their primary languages, something that's changing with more than just the three shows that are part of this deal. There's also the cultural and possibly economical divides, though Latinos are making headway on all fronts. 

This is an important market for Netflix. It's not a coincidence that its international push had the Caribbean and Latin America following its initial foray into Canada. Netflix is a global company, and while stateside subscribers may account for 58% of its streaming business these days, a whopping 71% of its net additions over the past year have been international users. 

Some analysts see international users eventually accounting for more than two-thirds of Netflix's audience. This week's deal with Univision is a strong step in that direction. Netflix investors just hope that Univision doesn't realize that it's whitewashing the fence that will ultimately lead to the gate for cord cutters to kiss linear television goodbye.

Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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