Can Netflix (NFLX) Heave A Sigh Of Relief After DOJ Warning?

Netflix, Inc. Revenue (TTM) | Netflix, Inc. Quote

Issue in Detail

In a letter addressed to Academy of Motion Picture Arts and Sciences’ (AMPAS) CEO Dawn Hudson, Makan Delrahim, DOJ Antitrust Division’s chief, stated that the suggested rules by the Academy members may restrict competition and elevate antitrust concerns.

He also stated that agreements among competitors to eliminate competition “without procompetitive justification” is in violation of Section 1 of the Sherman Act.

Notably, the meeting to discuss change in rules for the awards will be held on Apr 23, 2019.

Streaming companies, especially Netflix, would have been the most affected if the rule came into effect. A case in point could be the loss of Netflix’s Roma to Universal Pictures’ Green Book in the best picture category after a close fight in the recent Academy Awards. Universal Pictures is owned by Comcast (NASDAQ:CMCSA) .

This may be because “some members of the academy aren’t really ready for a streaming service to win best picture” per Erik Davis from Fandango.com. However, Roma won the award for best foreign-language film and the film’s director, Alfonso Cuaron, won the best director award for the movie at the recent Academy Awards.

Additionally, the company had to pull out of Cannes film festival after Cannes insisted that the title should have theatrical release in France.

Lower Non-Content Costs May Ease Netflix’s Burden

Netflix can lower its marketing and distribution costs if it is not required to release movies in theaters to be eligible for Oscar nominations. This may reduce its cost burden at a time when the company is investing billions in producing original content.

Notably, Netflix is expected to spend $15 billion in 2019, 85% of which will be spent for original content, per Variety.

Investments in premium content will not only help Netflix win new subscribers and retain existing ones but fight competition from upcoming streaming services from Disney (NYSE:DIS) and Apple (NASDAQ:AAPL) .

Disney with its content strength and Apple with its huge cash reserves are pulling out all stops to foray into the space.

Reduction in non-content costs may ease Netflix’s burden a little. Moreover, if the company can increase its monetization opportunities and reduce costs per subscribers it may soon reduce its cash burn.

Netflix currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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