HBO/Amazon Deal Could Impact Netflix (NFLX) Price Increase, Stifel Says; But Devil in the Details

While HBO's streaming video deal with Amazon (NASDAQ: AMZN) is a clear negative for Netflix (NASDAQ: NFLX), the devil is in the details, according to Stifel Nicolaus analyst Benjamin Mogil.

Mogil highlights the fact that the deal grants Prime the streaming rights to HBO shows three years after their airing on HBO. Also, HBO programming will remain on the HBO platform during the Prime license period and interestingly "Games of Thrones" is not mentioned among the upcoming titles.

Still, the deal is a negative for Netflix in that it super-charges the Prime content offering and could impact Netflix's ability to raise prices.

"Netflix has often noted that HBO product is the most requested product for its service," Mogil comments. "What is probably more important right now for Netflix is whether they rein in their pricing increase (i.e. does it go to a $1.00 increase when previously $2.00 was achievable) ambitions," he continued. However, the three year window is significant and may somewhat blunt the impact of this headline in terms of actual subscriber impact for Netflix. Also, the product remaining on the HBO platform during the Prime license will lessen the impact as well.

Commenting on why HBO picked Amazon over Netflix, Mogil said, "[w]e suspect the decision lay not so much in license fee pricing (we think that Netflix would have paid up materially for such a deal) but rather in subscriber base differentials." He added, "As Netflix's subscriber base is effectively on par with HBO's, a license from HBO to Netflix, even with a three year window, would have been viewed as damaging to HBO's subscriber growth while a license to the much smaller footprint Amazon (24mn subscribers) was likely seen as less impactful to the HBO subscriber growth. Scripps has similarly licensed its content to Amazon and not Netflix on similar concerns about the ratings impact from a license to the larger service."

The firm maintained a Buy rating price target of $475 on Neflix

For an analyst ratings summary and ratings history on Netflix click here. For more ratings news on Netflix click here.

Shares of Netflix are down 3.2% early to $360.93 amid today's news.

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