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Despite DreamWorks Animation Skg Inc Deal, There's Still a Bear Case for Netflix, Inc.

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The online streaming and DVD rental company just signed a new landmark deal with DreamWorks, but some are still skeptical about its future.

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In April, after Netflix released its first-quarter earnings results, Pachter also commented on the issue on CNBC.

"I think that all investors have to do is look at the last page of their investor letter, and you can see that revenue sequentially went up $49 million and content cost went up sequentially $16 million. That is unsustainable," he said.

"If I can notice that in the first half hour after the call, I think every content owner can see that. Netflix is not paying enough of revenue to content owners. They're profiting by paying less for content. That's not sustainable," added Pachter.

Indeed, original content is not cheap to produce (no financial details were disclosed for the DreamWorks deal, but it has been estimated that the two seasons of House of Cards, for example, will cost $100 million).

And with big media players like Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc.'s (NASDAQ:AAPL) iTunes all bidding for programming from content producers, Netflix will find it hard to keep content acquisition costs down as well.

But, of course, some analysts say the threat of competitors like Amazon is overhyped.

"I've been a skeptic, and the biggest argument against Netflix was that competition was going to crush them," said Josh Brown of Fusion Analytics, according to CNBC. "I'm now listening to that for 12 years. It hasn't happened."

"Everyone's about to kill Netflix," he said, noting then Amazon, Hulu, Time Warner Cable (NYSE:TWC) and Comcast Corporation (NASDAQ:CMCSA) have all at one time or another be cited as likely Netflix killers. "Let me know when it happens. In the meantime, [Netflix is] controlling the story."

Additionally, bulls also say that as Netflix grows larger and gains greater power at the bargaining table, it will be able to better control content costs.

"If Netflix is able to gain footage into the next 30% of households, not only will it position itself to better negotiate future licensing deals on content to lower operating costs, Netflix will be in a position to substantially threaten current cable providers such as Comcast and Time Warner, in becoming a serious competitor," commented Seeking Alpha.

Indeed, Jefferies analyst Brian Fitzgerald argued the power shift has already begun.

"Netflix is starting to get to a degree where content companies are considering them a viable distribution partner" for new programs, said Fitzgerald, according to Bloomberg. Studios are "coming to Netflix for deals instead of vice versa," he pointed out.

Twitter: @sterlingwong
No positions in stocks mentioned.
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