Facebook
Twitter
You may have heard the news that movies like “The Hunger Games” won’t be available on Netflix (NASDAQ: NFLX) anymore because the company didn’t extend its agreement with pay-TV channel Epix.
Let me explain what’s going on, why it doesn’t make any difference at all to Netflix or its shareholders, and the one thing that does matter to Netflix and its shareholders.
A few years back, Epix was created as a joint venture between Lions Gate Entertainment (NYSE: LGF), Paramount Pictures and MGM. Epix is a premium pay television network that runs movies, documentaries and other content.
It signed what’s called a non-exclusive deal to provide its content to Netflix. This means that the Netflix-Epix deal permitted Netflix to stream Epix content in exchange for payment.
But because it is non-exclusive, Epix retained the right to sell its content to other streaming services – which it did.
That deal with Netflix is over, and Netflix hopes to distinguish its “channel” from other streaming services. Its goal is to do so by offering original content along with other exclusive content through such deals as the one it struck with The Walt Disney Co. (NYSE: DIS), which starts in 2016.
Why Netflix Doesn’t Care
Why doesn’t it matter to Netflix if it loses the Epix deal? Netflix has a huge content library. The service simply will not lose very many subscribers as a result of the content from Epix being available elsewhere.
Epix content can be found elsewhere, and it will now use Hulu as its preferred streaming provider. People who have a Roku or similar device have access to content from every possible streaming service. They won’t dump Netflix over this.
Meanwhile, Netflix gets to take the capital it might otherwise pay for those non-exclusive Epix rights into producing more original content. This includes its latest move, which is picking up foreign TV series for distribution here in the U.S. and calling it Netflix original content.
Epix moving elsewhere does not make a difference as far as Netflix revenue is concerned. It isn’t like people are signing up for Netflix because of that amazing Epix content.
If anything, people sign up for Netflix simply because it is the premier streaming service as a primary reason, and for original content as a secondary reason.
Since the Epix migration doesn’t change revenue, then it doesn’t change earnings – not that Netflix has much of that anyway.
The Only Thing That Matters
There is only one thing that matters to Netflix: momentum.
Netflix does not trade on revenue, earnings or discounted future cash flow. It certainly doesn’t trade on revenue growth, what fab new foreign territories it has added, or what will happen in the next season of “Orange Is the New Black.”
Netflix moves only because it is a momentum stock. As long as the momentum traders are playing, the stock will continue to rise. As long as analysts assess price targets of $150, the stock will rise. As long as Netflix remains a volatile stock, it will be beholden only to momentum, not Epix or any other content deal.
How Rockefeller really got rich
Upon his death, John D. Rockefeller held a fortune worth $336 billion in today’s dollars. But the conventional account of how he actually made his billions is way off base. The truth is, much, if not most of Rockefeller’s vast fortune was due to one simple move. And by making this same move, ordinary people across America are getting rich, too. The best part: you can join them today. All it takes is a few minutes.