Netflix, Inc. (NFLX) and The Walt Disney Company (DIS) Look to Break Away From Cable

In December, Netflix, Inc. (NASDAQ:NFLX) and The Walt Disney Company (NYSE:DIS) announced a groundbreaking deal. Disney is searching for new distribution partners because it wants to focus on content creation rather than just broadcasting it. Broadcasting is becoming a commodity business, which has created a lot of pressure on Netflix’s stock. At times in the past two years it seems every bit of news that came out was a negative for Netflix, such as the Epix deal with Amazon.com, Inc. (NASDAQ:AMZN). With the Disney deal that trend seems to have reversed itself.

Previous quarter results confirmed that Netflix, Inc. (NASDAQ:NFLX) has turned the revenue corner on its streaming business, reporting a 10% increase in revenues — $905 million for the quarter. Margins continue to drop, however (an 87.7% drop year-over-year) to over $7.67 million. And for most of 2012, the company performed far worse than its customer growth projections. It added just 1.2 million users in Q3.

Viewers can still watch Disney’s movies and shows on the Starz (NASDAQ:STRZA) network. However, beginning in 2016, that content becomes exclusive to Netflix, Inc. (NASDAQ:NFLX).  Disney has been assiduously building an enviable portfolio of content brands, which include Marvel, Walt Disney (NYSE:DIS) Animation, Disney nature, Pixar and now Lucasfilm. So, now the Disney, Star Wars, Netflix circle is complete.

Amazon, while a fantastic company, is still playing catch-up with Netflix, Inc. (NASDAQ:NFLX) in so many ways. While I have no doubt that Amazon will continue to evolve its Prime streaming services, as I look into the future I see a streamlined and focused Netflix, Inc. (NASDAQ:NFLX) determined to break the concept of the television network down and bring it into a different space. Amazon is still, first and foremost, a retailing outfit and everything it does is in support of that.

The key to these projections longer-term falls squarely on the quality of the original programming that the streaming companies produce. The early returns on Netflix’s original series have been good. What I love about the way this is evolving is that big data will be combined into the content creation process to further refine the potential return on investment.