Netflix, Inc. (NASDAQ: NFLX) is in talks with top entertainment studios to modify its programming agreements to offer their shows on an ad-supported version of its service, The Wall Street Journal said, citing people with knowledge of the matter.
It is currently holding talks with Sony Group (NYSE: SONY), Universal Studios, and Warner Bros (NASDAQ: WBD) for shows made exclusively for Netflix. Apart from these shows, the streaming giant will also need to renegotiate deals for the older TV shows that it streams.
A Netflix spokeswoman said, “We are still in the early days of deciding how to launch a lower-priced, ad-supported option, and no decisions have been made.”
These studios are expected to charge a premium of 15% to 30% over their existing contracts to allow Netflix to put their content on its ad-supported tier.
Jeffrey Schlesinger, a former President of Warner Bros, said, “Any distributor being approached by Netflix is going to take steps to ensure they get the proper value.”
The California-based company plans to launch the ad-supported platform by the last quarter of this year.
Wall Street Is Concerned About Netflix
On July 12, Morgan Stanley (NYSE: MS) analyst Benjamin Swinburne maintained a Hold rating on the stock but cut the price target to $220 from $300 (26.1% upside potential).
The analyst said, “We see risk to consensus estimates as rising macro headwinds drive consumers to pare back their streaming spending.”
Additionally, Nat Schindler of Bank of America Securities reiterated a Sell rating on Netflix with a $196 price target (12.4% upside potential).
Schindler expects the company’s second-quarter revenues to take a $270 million hit due to unfavorable foreign exchange rates.
On TipRanks, the stock has a Hold consensus rating based on 10 Buys, 25 Holds and six Sells. Netflix’s average price forecast of $266.09 implies 52.5% upside potential from current levels.
Hedge Funds Love Netflix
TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Netflix is currently Very Positive, as the cumulative change in holdings across all 39 hedge funds that were active in the last quarter was an increase of 2.2 million shares.
Caution Ahead for Netflix’s Investors
The news has come just days before Netflix is slated to release its second-quarter results on July 19. In the first quarter, the company’s earnings declined almost 6% year-over-year to $3.53 per share, and it reported subscriber loss for the first time in 10 years.
Netflix lost 200,000 net subscribers in the first quarter and expects to lose another two million in the second quarter. Meanwhile, analysts expect the company to report EPS of $2.97 in the second quarter, the same as last year.
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