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Netflix's future without Disney

Netflix Inc. saw a 1,256% share-price growth since its initial December 2012 Walt Disney Co. partnership, with the deal considered a coup for the streaming service. The pact came when Netflix had no original content and growth drivers were uncertain. The company has a first-run post-theatrical deal for Disney films and an original content partnership for certain Marvel properties.

With Disney's Aug. 8 announcement to end the pact, Netflix shares reacted sharply negative, trading down over 6% between Aug. 8 and midday trading Aug. 10.

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BMO Capital Markets' Daniel Salmon thinks the market overreacted, citing the streaming service's numerous other content deals. Since 2010, Netflix has announced no less than 16 deals with various studios and content companies. In addition, both Disney, during its earnings call outlining the deal, and Netflix, in a statement to S&P Global Market Intelligence, indicated they would likely continue to work together in some capacity.

Netflix has long argued that its value proposition is built on a secular shift to internet TV, and Disney's direct-to-consumer streaming strategy only underscores Netflix's read on the market, Salmon said in an Aug. 9 research note.

"Note that DIS has a variety of deals with NFLX and will continue to supply plenty of other content (TV shows, etc.) to them under these arrangements. While we understand the initial negative reaction in NFLX shares (they will lose access to a lot of great family films), we think it may provide the opportunity for a short-term reversal trade as Disney's moves ultimately validate Netflix’s long-term strategy," Salmon said in the note.

Disney said it is not yet sure the fate of its Marvel and Star Wars content, teasing the idea of a separate streaming service, but Salmon argued the company should renew its post-theatrical window with Netflix until those brands have expanded further.

FBR Capital Markets analyst Barton Crockett said that Netflix will have an opportunity to spin the deals positively, arguing that Disney's move validates its own strategy and significantly expands the internet TV ecosystem at the expense of traditional TV, but market expansion only benefits Netflix so far, and eventually consumers will have to choose between competing services.

"More options for the consumer have to limit Netflix's pricing leverage and constrain its market opportunity as some consumers might be happy with Disney for online entertainment, instead of Netflix. Plus, we fully expect Disney's peers to copycat and to move more aggressively online, including Fox, CBS (already there), Discovery, T/TWX, NBCU. The traditional TV 'dinosaurs' will give Netflix a bigger fight than we have seen so far," Crockett said in an Aug. 9 note.