A Game-Changer for Netflix, Inc. (NFLX)?

The DreamWorks deal covers more than 300 hours of content; at the same cost per hour as House of Cards, it could cost more than $1.2 billion over the license period! This appears to be in the general ballpark of production costs for popular animated series on network TV. But even if the Netflix shows cost half that amount, it will still represent a significant chunk of the company’s content budget during the license period; in 2012, Netflix spent just over $2 billion on content.

Foolish conclusion

Netflix is boldly moving to capture high-quality original children’s series in order to offset the loss of similar programming from Viacom. However, this agreement will add significantly to Netflix’s content costs going forward, and the payoff is uncertain at best.

If Netflix can get kids hooked on its shows, their parents will be less likely to quit the service, reducing churn for Netflix. On the other hand, Netflix faces a bit of a gap in children’s programming right now, whereas Amazon has just beefed up its offering and is better positioned to steal customers. As a result, this deal is very risky for Netflix. If a substantial number of families have already switched to Amazon Prime by the time that the DreamWorks shows arrive on Netflix, it will be hard for the company to justify the high cost of this original content.

The article Is This Deal Really a Game Changer for Netflix? originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg is short shares of Netflix and Amazon.com. The Motley Fool recommends Amazon.com, DreamWorks Animation, and Netflix. The Motley Fool owns shares of Amazon.com and Netflix.

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