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Why Cable Needs Netflix, Inc. (NFLX)

Netflix, Inc. (NASDAQ:NFLX) is a media magnet and has been leaving the market in the dust lately. However, the subject matter of too many articles is “cord cutting,” or consumers leaving cable-TV providers for streaming services. One doesn’t need to research stocks to know that cable providers, particularly Comcast Corporation (NASDAQ:CMCSA), are doing just fine. Although these companies are easily and often viewed as competitors, they depend on each other more than most people see.

Netflix, Inc. (NASDAQ:NFLX)The Challenger

Netflix is a great product that people are continuing to discover even fifteen years after its founding. The idea of bringing movies and television shows to the living room doesn’t need to change, but the content needs to expand and evolve to attract different audiences. So far, they’re on the right track with their original  House of Cards to compete with cable companies. If Netflix becomes a hub for high-demand shows that can  only be seen on Netflix, competitors are going to panic. Original content is now in more places than your cable box.

Perhaps more importantly is the reported $300M/year deal with The Walt Disney Company (NYSE:DIS) for reasons beyond the joining forces with a blue-chip company. Families will soon be able to enjoy titles that span generations for children and adults alike in a library that includes Disney animation, Pixar, and the high-profile Marvel films. Even if Netflix hikes its streaming price in the next few years, families will fork it out for the kids.

Much of the deal will not take effect until 2016, but because of the agreement, Netflix hopes that more broadband streaming in more than the current 80 million American homes can only mean more subscribers. Having exhausted its positive free cash flow resulting in -$67 million for 2012, the need for subscribers has become critical. The company’s goal is to more than double its current amount of viewers; it sounds a little too ambitious, but Disney making a deal is normally a green light for investors.

Netflix has exclusive rights for Disney content, but the more impactful result is that competitors are restricted. Ever surprising, Inc. (NASDAQ:AMZN) will likely have a trick up its sleeve, but other competitors such as Hulu Plus and Redbox Instant may fade out if they are unable to secure top-notch content or produce originals of their own. There is an endless amount of content out there, but with many companies providing similar services, the best content combined with value will win out, such as Sirius XM Radio Inc (NASDAQ:SIRI) dominating the radio industry.