I have been a Netflix (NFLX) subscriber for over three years. During that span I have watched new and old movies. The movies have been from all studios and of all genres. Netflix has now decided that I should watch some old flicks from Time Warner (TWX) before I am able to rent new ones.
An agreement signed by Netflix and TIme Warner will make new Time Warner released movies unavailable to Netflix subscribers for four weeks. Time Warner hopes that this move increases its initial sales of new titles. Netflix by signing this deal will have more titles of each movie after the four week waiting period. Netflix will also have more streaming online content from Time Warner.
Netflix CEO Reed Hastings has said in several interviews that he wants to push further into online content, but at what cost. The company will have cheaper costs for Time Warner movies, but will likely not pass on savings to subscribers. Renters who only rent new titles will be scrambling elsewhere to see the latest movies.
Netflix competitor, Redbox (owned by Coinstar-CSTR) continues to pick up steam with its $1 new release rentals. Blockbuster has installed rental kiosks at several locations across the nation as well. I believe in Reed Hastings and think that online content is valuable. The system had been working for Netflix without this deal. More studios are likely to come after Netflix and want similar deals.
I still believe in Netflix and will continue to be a subscriber. I hope that the company does not leave its main by mail rental operation in the dust while it becomes an online streaming machine.
Recently I picked Netflix as one of my Top Ten Stocks for 2010. I still believe the company will outperform the S&P 500 and possibly be bought out this year. I believe the shares will suffer a pullback now. If the stock drops below $45, I would look at buying again. I would also look at shares of Coinstar, as they could benefit short and long term from this announcement.