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Could 'Mad Men' Deal Hurt Netflix?

Shareholders aren't too happy about paying out $1 million an episode

Netflix is determined to get subscribers to its online streaming service, and is willing to pay big money to make that happen.

However, the people who help finance the company through the stock market might not agree.

Netflix shares lost 3 percent of their value in trading the day after the announcement was made for the company to carry the AMC critical hit "Mad Men" ... at an eye-popping $1 million an episode.

Such a deal would be worth $52 million for all four current seasons, extremely high considering "Mad Men" has never claimed too large of an audience despite its regular Emmy wins.

But Netflix wants to ensure its place in the industry, and is spending upward of $1 billion on content this year to make that happen, according to Bloomberg Businessweek.

So far, Netflix can afford it. Shares were trading at just under $235 at the end of Friday, up 31 percent from the beginning of the year. Netflix had a net income of $161 million in 2010 on revenue of $2.1 billion. As of now, the company has a market capitalization of $12.4 billion -- the value of all its current stock at Friday's market price.

Yet, investors are a little hesitant to sign off on the "Mad Men" deal. Before the announcement, shares had reached $245, just shy of its February high. Friday's close was 4 percent lower, but nothing too earth-shattering yet.

However, real damage could occur later in the year after "Mad Men" debuts on Netflix. If the company doesn't get the return its hoping for -- more subscribers -- Netflix could be seeing a smaller profit than it's been boasting in recent quarters.

What would it take for Netflix to break even on a deal like this? If we're talking just subscribers who view online only, at $7.99 each month, Netflix would need to see a subscription growth of more than 542,000 to not really lose on this deal.

But then again, paying so much for "Mad Men" has brought even more attention to Netflix, giving it some free publicity, and stealing a little bit of thunder from Dish Network's recent purchase of possible future rival Blockbuster.

"Mad Men" is available beginning July 27 on Netflix.

About the Author

Michael Hinman is the founder and editor-in-chief for Airlock Alpha and the entire GenreNexus. He owns Nexus Media Group Inc., the parent corporation of the GenreNexus and is a veteran print journalist. He lives in Tampa, Fla.
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Tags:
AMC  Mad Men 

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