Industry watchers have their eyes peeled on the Internet company (Inco) Netflix, interested to see what the next step will be for the online streaming service.
For now, the studios seem to be unsure of how to deal with Netflix, and whether or not they want to at all.

Earlier this year, DreamWorks Animation signed an exclusive movie deal with the company, for films released from 2013 through 2016. As a result of the deal, DreamWorks is ending a partnership with HBO early.

CBS and Warner Bros. have happily sold their CW content to Netflix, and CBS reportedly received $200 million from the Inco in the second half of this year for some library material.

But Disney and Sony stopped offering their films on Netflix in February.

Netflix has responded to a loss of studio content by focusing on creating original content. (It seems to be following in the footsteps of HBO, which began producing original series when it ran out of studio films to broadcast.)

Upcoming original series include thriller House of Cards,  starring Kevin Spacey, which is set to debut at the end of 2012; Lilyhammer, a Norweigan production starring Steve Van Zandt (The Sopranos) about a former New York mobster who travels to Norway under the Witness Protection Program; and Borgia: Faith and Fear, a French/German drama about the powerful Renaissance-era Italian family.

And just last month, Netflix delighted fans of cancelled Fox comedy series Arrested Development by announcing plans to resuscitate the series. The New York Times reported that the deal between 20th Century Fox, Imagine Television and Netflix will bring an undisclosed number of episodes in 2013.

At MIPCOM in October, Chief Content Officer of Netflix Ted Sarandos said the motivation behind the original programming came partly from the fact that “owners such as HBO and Starz don’t really want to sell to us.”

Media consultant, producer and industry veteran Russ Kagan expects a tough road ahead for Netflix when it comes to original programming. “Doing first-run programming is a tough order,” he said. “And you’re competing against everyone, but with limited resources. They’re competing against Showtime, Starz. That’s hard.”

And the new programming plans come amid major economic turmoil at the Inco.

In September, the company increased subscription prices, saying that its original model — of DVD delivery service — was being largely replaced by online streaming.

Stocks have plummeted as a result — going from a July high of $300-plus to less than $70 in recent weeks.

Following the stock freefall, Neflix chose to raise $400 million from investors by issuing debt and selling 2.86 million shares.

The poor stock performance and the debt offering have fueled rumors that the company is perfectly suited for M & A.

Verizon has been floated as a possible buyer. Some say DirectTV, AT&T, Microsoft, and Apple could potentially be interested in Netflix.

The New York City daily newspaper The New York Post quoted recently one Wall Street source who said that Netflix is in talks with content companies about deepening partnerships in a way that could lead to the sale of a stake in the company. (The Post also pointed out that a $3.5 billion tab for content commitments could make the company a bit less attractive to any buyer.)

Kagan doubts any studio or group of studios would come together to buy Netflix. “They’re all vested in their own brands. And if you take a look at the history of bulk TV operations, they don’t usually work.”

But he doesn’t think Netflix faces shuttering. “As long as Netflix continues to have subscribers who will pay money, they’re a valuable asset,” he said.

“Don’t believe everything you read. The question is who they’re viable to. One man’s dirt is another man’s gold. They would probably mean more to someone like a Facebook, which doesn’t have an entertainment business yet, or to a company with a great  social networking market, with no revenue side.”

Kagan is particularly interested to see how Netflix will grow and extend its brand outside of North America. The company is launching in Latin America, but Kagan foresees some problems ahead. “Bandwidth is not the same all over the world,” he said. “The problem is that in some countries, like Australia, people get charged based on bandwidth, and Netflix could take up a lot of bandwidth. There’s a great digial divide — between the haves and the have-nots.”

Netflix’s largest overseas competition comes from Amazon, which has bought up some struggling services in Europe. “The war is really going to be between Amazon and Netflix over efficiencies. Who can buy smarter, but also who has other businesses that can support them?”

Kagan still thinks that Netflix is a viable service, that’s legitimately earned its popularity across North America. “The reason why it’s gotten such great traction is because users don’t have to buy a bundle, they can get it for less than $10 a month. That’s sort of the revolution,” he said.

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