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Netflix to Spend Big, Strike Cable Deals in 2014

Alan Breznick
2/6/2014
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Flexing its muscles as the world's leading online video player, Netflix plans to spend about $3 billion on content rights in 2014 as it snaps up more movies and TV shows and invests more heavily in original programming.

The OTT giant also expects to seal its first service partnership deals with US cable operators this year.

In its annual report for 2013, Netflix Inc. (Nasdaq: NFLX) said it will shell out $7.25 billion on its current content licensing deals with movie and TV studios over the next five years, including a record $3 billion this year and another $3.3 billion in 2015 and 2016. Those figures, of course, could always go up if the online video giant signs more licensing pacts with programmers and rights holders.

Of that $3 billion in 2014, Netflix aims to spend up to $300 million, or 10% of the total, on developing original content. Previously, the company, which took home its first Emmy awards for its House of Cards series last year, said it will bring back House of Cards and five other original series for new seasons while also launching its first animated series for adults, an "epic series" based on the adventures of Marco Polo, and new children's shows from DreamWorks Animation.

In its annual report, which was posted on its website earlier this week, Netflix also said it expects to embark on "a substantial European expansion" this year. The company, which last expanded to Scandinavia in late 2012 and the Netherlands last September and now operates in seven European nations, did not say where it would strike next. But previous press reports have suggested that it may target France and Germany next because of their high broadband penetration rates.

To finance that international expansion and heavier spending on original content, Netflix is seeking to raise $400 million through the sale of long-term debt. The company announced Tuesday that it will offer 10-year senior notes to investors to round up the cash for its ambitious plans.

Moreover, Netflix said it expects to launch its first integrated service with US cable operators in 2014, after years of clashing with the industry. In their annual letter to shareholders, Netflix CEO Reed Hastings and CFO David Wells said they "anticipate rolling out our first MVPD (multichannel video programming distributor) integrations soon with some of the smaller MVPDs."

Hastings and Wells did not name the cable operators. But, as reported here and elsewhere last fall, Netflix is purportedly negotiating with several major US MSOs, including Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Suddenlink Communications , about placing its popular streaming video service on advanced cable set-tops. Under the framework for these deals, the popular Netflix video streaming service would become an app on these set-tops. (See Netflix-MSO Deal in the Works?)

But the wording of the shareholders letter suggests that Comcast won't be serving up Netflix to its subscribers all that soon, even if it manages to work out a deal with its online video rival. Instead, it seems more likely that more midsized MSOs such as Suddenlink might be the first to offer a Netflix service to cable customers.

Netflix already has similar cable integration deals in place with two European MSOs -- Virgin Media Inc. (Nasdaq: VMED) in the UK and com hem AB in Sweden. But up until now it's been stymied in trying to strike such deals in the US because of content rights restrictions and strong MSO resistance to the idea. (See Com Hem Rolls Out Netflix.)

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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albreznick
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albreznick,
User Rank: Blogger
2/18/2014 | 9:57:19 PM
Re: Yes and No!
Well, Sam, now that Comcast is buying Time Warner Cable, you may not have to worry about that prospect. Looks like Comcast is already putting the kibosh on any deals between Netflix and TWC. So that may scotch other cable deals for Netflix too. 
sam masud
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sam masud,
User Rank: Light Sabre
2/10/2014 | 2:43:02 PM
Yes and No!
I think it's great that Netflix is buying more content, BUT I don't like the idea of it getting into bed with MSOs in any way.
DOShea
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DOShea,
User Rank: Blogger
2/6/2014 | 5:23:07 PM
Starting small?
I don't see one of the big cable operators doing this just yet, even though the possibility has been reported. The mention of Suddenlink or a company about that size sound more likely the type of operator that would actually move quickly to sign a partnership with netflix.
Ariella
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Ariella,
User Rank: Light Sabre
2/6/2014 | 12:03:10 PM
Netflix
Netflix has been very successful here, so it's now wonder it wants to try to expand abroad. If it can apply its algorithms to anticipate European tastes and expectations as well as it does American ones, it should do very well. 
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