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Netflix Stock Boom May Bring Gloom to Hollywood

Virgin Media pact could foretell future problems for TV networks, distributors

A deal announced Monday between Netflix and Virgin Media in the U.K. is the likeliest reason for the streaming service’s stock rocketing past $300 this morning to record highs.

But what’s great news for Netflix may not be as rosy for Hollywood, analysts caution, whether that’s the content companies with which Netflix competes or the pay-TV companies which pay the programmers billions of dollars in affiliate-fee revenue each year.

As Doug Anmuth of J.P. Morgan notes, Virgin Media may be just the first cable operator that gives its subscribers access to Netflix on its set-top box alongside other programming options.

“We believe the deal is significant for Netflix, as it is the company’s first ‘through-the-middle’ partnership with a pay-TV provider, and it could open the door for similar distribution deals in other geographies,” he wrote, noting that only Virgin subs who use its Tivo set-top will get Netflix access.

But as Janney Capital Markets analyst Tony Wible notes, elevating Netflix to the same level as traditional TV networks could ultimately provide them increased competition. What was once a streaming service on a different TV input or device is now something so integrated that Tivo’s implementation will even surface Netflix in search results.

“The real call based on this announcement is that it is incrementally negative for traditional networks,” he wrote. “Netflix content is now only a click away, and we expect to see higher utilization of the Netflix service, which we believe will come at the expense (at least in part) of traditional TV networks, particularly for lesser watched programming.”

Netflix has already been blamed for ratings downturns in the past particularly for Nickelodeon, though parent company Viacom has denied that the short-term downturn was the result of so much of its programming also being available via Netflix.

Ted Hall, senior analyst with Informa Telecoms & Media, believes that the threat Netflix provides on set-top boxes extends beyond the networks to the pay-TV providers themselves.

“The danger for Virgin Media is that its customers will find Netflix to be a revelation that they would not otherwise have stumbled upon, opening their eyes to a low-cost subscription TV service that satisfies their core entertainment needs,” he said. “Rather than strengthening the appeal of TiVo, the addition of Netflix could in fact do the opposite and encourage customers to cut the cord and settle for a cheaper combination of broadband, Netflix (via other devices) and free-to-air TV.”

As of 9:30 a.m. PT, Netflix had surpassed $308, up nearly 14%. Netflix’s previous all-time high was $304.79 per share, hit on July 13, 2011. Highest closing price was $298.73, also on that date.

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