Netflix Begins Breaking Out Original Programming In Financial Statements

For the first time ever, Netflix, Inc. (NASDAQ: NFLX) provided investors with a breakdown of its produced content and licensed content assets in the notes to the consolidated financial statements in its 10-Q release dated July 19, 2016.

Produced content includes Netflix's library of original content that it creates itself versus original content it licenses from third-party studios, such as "House of Cards" from Media Rights Capital.

Daniel Salmon, a media and internet analyst at BMO Capital Markets commented in a research note that the impact of the new breakdown is "neutral."

Related Link: 10 Movies Leaving Netflix In August

According to the analyst, Netflix's strategy of creating and owning more content can help it bypass "complex" global licensing agreements and make it easier to distribute the content globally. In addition, a potential future reward for Netflix could include secondary revenue streams such as consumer product licensing and offline syndication.

On the other hand, being the owner of a property comes with greater risk if the programming is not a success.

Salmon added that he expects Netflix's produced content to grow to 8.8 percent of the total library by the end of the current year and then rise to 11.3 percent by the end of next year.

Shares of Netflix remain Market-Perform rated with an unchanged $85 price target, which implies a 41.5x multiple to the analyst's 2017 estimated EV/EBITDA.

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