Netflix shares have settled to about $55.88, -6.4%, in early afternoon trading following the announcement that Amazon Prime will double its video offerings with a new agreement to stream movies from EPIX. But analysts say Netflix faces a difficult stretch as a rival service begins to offer content that Netflix had exclusively in the online universe for the last two years. The new agreement “puts a significant dent” into some investors’ hope that Amazon would buy Netflix, Janney Capital Markets’ Tony Wible says. EPIX is expensive and Amazon “would not likely want to pay twice for the same content.” He adds that the competition from Amazon could hurt because about half of Netflix customers subscribe to watch movies.
Barclays Capital’s Anthony DiClemente is a little more sanguine — he calls the development “a modest negative” for Netflix. Still, he lowered his price target for the stock to $70 from $80 noting that Netflix’s “unwillingness or inability to pay up for exclusivity suggests that it may not have the capital necessary to bid for top quality domestic content.” He wonders whether Netflix’s push into overseas markets — including its just-announced expansion into Scandanavia — “may be coming at the expense of the domestic business, where content costs for Netflix continue to rise at a rapid pace.” The competition here is sure to intensify, B. Riley’s Eric Wold warns. Redbox and Verizon decided to launch their streaming service — Redbox Instant by Verizon — in late 2012 in order to “take advantage of this [EPIX] content becoming available” with the September 1 expiration of the exclusivity terms with Netflix, he says. But Susquehanna Financial Group’s Vasily Karasyov says that EPIX content only accounts for “a mid-single digit percent share of viewing in Netflix households.” He sees EPIX’s deal with Amazon as validation of Netflix’ decision to pick up original content including Media Rights Capital’s upcoming series House Of Cards. He acknowledges, though, that “it’s not easy to produce successful content at scale.”