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Netflix shares dive after costly 'Mad Men' deal

Fri, 04/08/2011 - 8:00am
The Associated Press

LOS GATOS, Calif. (AP) – Shares of Netflix fell Thursday as investors weighed the home entertainment company's decision to pay nearly $1 million per episode to syndicate the critically acclaimed series "Mad Men." The emergence of a new competitor also darkened the company's outlook.

THE SPARK: Netflix said late Tuesday that it will start streaming the hit TV series "Mad Men" in a multi-year deal with Lionsgate, the show's producer. The companies said that the show's first four seasons will be available beginning July 27.

The deal will cost Netflix nearly $1 million per episode, The Wall Street Journal reported – a high price for a show with relatively few viewers. Netflix is in the process of doubling its spending on content to more than $1.1 billion.

Meanwhile, Dish Network said Wednesday that it will buy Blockbuster out of bankruptcy, potentially creating a company that could compete for Netflix's streaming-video customers.

THE BIG PICTURE: Netflix shares have been on fire, tripling in value over the past 52 weeks. The company has emerged as a leader in streaming video, as more customers choose on-demand entertainment over broadcast content.

The costly "Mad Men" deal caused some investors to question the company's lavish spending, including the cost of producing an original series, "House of Cards," with actor Kevin Spacey. Some believe the company is in over its head.

THE ANALYSIS: Despite losing value Wednesday and Thursday, Netflix shares remain near their 52-week high of $248.88. The company's subscriber base is growing rapidly, and it still dominates the market for streaming video. Analysts said it will be some months before the Dish-Blockbuster merger presents a real threat to Netflix's earnings.

SHARE ACTION: Netflix shares fell $6.22, or 3 percent, to $233.75 Thursday.

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