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Netflix, Inc. (NFLX), Amazon.com, Inc. (AMZN): Is Original Programming the Key to Online Streaming?

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For Netflix, Inc. (NASDAQ:NFLX) investors, life has been a roller coaster the past couple of years. The gradual decline of media-based movie-viewing had rendered Netflix, Inc. (NASDAQ:NFLX)’s DVDs-by-mail program outdated, and the company’s increase in prices for those wanting both DVDs and streaming had investors concerned. But, the bad publicity seems to have leveled off, and in retrospect, it seems pretty clear that splitting off its online streaming program from DVDs-by-mail was a wise decision.

Netflix, Inc. (NFLX)As successful as Netflix, Inc. (NASDAQ:NFLX)’s online streaming offerings have become, the company isn’t without competition. Almost everyone is battling to win online streaming customers, from Hulu to HBO to Amazon (NASDAQ:AMZN) and beyond. To continue revenue growth, Netflix, Inc. (NASDAQ:NFLX) has to do something that sets it apart from all the others.

A loaded deck

As licensing fees eat drastically into Netflix, Inc. (NASDAQ:NFLX)’s profits, the company has turned to original series to win and maintain customers. Most notably, House of Cards, a political drama starring Kevin Spacey, and new, original episodes of the popular comedy Arrested Development are bringing a fan base that streams Netflix solely to watch these shows.

It’s a gamble that’s paying off. Despite the cost of producing its own shows, Netflix is expected to report revenue of more than $1 billion in the first quarter, up 17% from Q1 2012.

Reaching out to children

Like Netflix, Amazon.com, Inc. (NASDAQ:AMZN) is also working hard to gain leverage with its original programming. Amazon.com, Inc. (NASDAQ:AMZN) is targeting a younger viewer base, though, many of whom are streaming via the company’s Kindle devices. It’s a smart move, considering parents buy Kindles for children too young to have an iPad. Kids will be able to watch shows like Annebots and Sara Solves It, where Amazon.com, Inc. (NASDAQ:AMZN) can conveniently slip in ads for kids products.

Amazon.com, Inc. (NASDAQ:AMZN) has put big money into its digital innovation to stellar results. Investors believe in Amazon.com, Inc. (NASDAQ:AMZN) now more than ever as evidenced by the fact that the company’s stock has more than doubled in the past three years. At the end of 2012, Amazon.com, Inc. (NASDAQ:AMZN) was valued at more than 700 times earnings, making it the stock with the highest trailing P/E ratio of any company on the S&P.

Online streaming may be the least of the reasons to invest in Amazon, which performs well overall regardless of its entertainment services. The company has announced plans to minimize cost of producing each piece of online content, however, which may help protect earnings by keeping operating costs low.

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