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Analyst: Netflix to Announce Second Game Console Partner Soon

19 Oct, 2009 By: Erik Gruenwedel

Netflix’s anticipated follow-up to distributing movie streams via Microsoft’s Xbox 360 Live is expected in the near future. That move will most likely be a partnership with the Sony PlayStation 3 system.

However, partnering with Nintendo would create a much larger potential audience, said an analyst.

Michael Pachter, with Wedbush Morgan Securities in Los Angeles, said the recent $100 price cut to the PS3 coupled with unit sales lagging behind rivals Xbox 360 and the Wii would make for a prime opportunity for Sony.

Indeed, gamers are twice as likely to stream more than 50 videos per day than the average Internet consumer, according to comScore’s GamePlan research tool.

That said, Xbox Live with more than 1 million Netflix subscribers, remains in the driver’s seat regarding impact on Netflix’s subscriber growth.

“Microsoft’s Xbox Live dashboard now allows greater access to Netflix Watch Instantly queues, making the Netflix experience more attractive,” Pachter wrote in a research note.

The analyst, who reaffirmed a “neutral” outlook on Netflix shares, said the rental service would report third-quarter (ended Sept. 30) revenue of $424 million and 11 million subscribers — about $2 million in revenue above consensus projections.

Pachter expects Netflix to raise 2009 revenue and sub guidance above current projections for revenue from $1.65 billion to $1.67 billion and subscribers of 11.6 million to 12 million.

“We believe that subscriber growth remains strong, driving revenues and gross profit higher, offset by higher streaming spending,” he wrote.

Indeed, Pachter said the increased revenue and sub base would afford Netflix the opportunity to increase spending on streaming content acquisition and marketing, the latter about $60 million per quarter.

“We expect the amount on streaming to inch up throughout the year,” the analyst wrote.

Separately, online investor advisor, The Motley Fool, said it expects Netflix to generate 39% earnings growth in the quarter, which it characterized as “not a surprise.”

Netflix reports financial results Oct. 22 following the market close.


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