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Miley Cyrus Movie? Netflix Streaming Selection Set to Improve 

The top 25 DVD rentals for the last week are nowhere to be found on Netflix’s live streaming service. The most recently made movie that you can stream instantly is Leonardo DiCaprio’s Shutter Island, released on DVD more than six months ago.

When you click on new arrivals on Netflix’s ‘watch instantly’ section, prominently displayed is the Miley Cyrus vehicle The Last Song, which had only 21 positive reviews out of 109, according to RottenTomatoes.com. Hang on movie buffs, it’s about to get better.

“The bears on Netflix still call out the streaming selection as being thin at best, or terrible at worst,” said David Miller, Caris & Co. analyst. “Regardless of anyone’s taste in genre, that’s going to change a lot more rapidly than many on the Street believe, and it will happen essentially through a virtuous cycle.”

Miller, who has been correctly bullish on Netflix since the shares were below $50 in 2009, believes that the increase in subscribers and subsequent new revenue will far outpace the rising rights costs the company will need to pay to update their streaming plan. He cited the shuttering of Blockbuster as a similar driver for subscriber growth.

Netflix added 5.65 million subscribers last quarter, 830,000 more than analysts had expected. The company’s cheapest plans cost $7.99 a month for streaming only and $8.99 for 1 DVD at a time in mail plus the unlimited streaming.

What the bears failed to realize was Netflix focused on being the easiest to use to gain subscribers first and then content second, said Miller. The acquisition of better content, the cost of which Miller sees rising by $500 million this year, will drive the shares up more than 30 percent to $316 over the next 12 months. The shares hit an all-time high today following the release of Miller’s note.

One of the more notable short sellers betting against the name – T2 Partners Whitney Tilson – covered his short last week after finding surprising results in a survey of Netflix’s streaming customers.

“We concluded that Netflix’s streaming library is weak and customers would be dissatisfied and reduce their usage of the streaming service – but our survey of more than 500 current Netflix customers revealed increasing usage over time and reasonably high satisfaction,” wrote Tilson in a note to clients last week. “For a low monthly price – typically $7.99 or $9.99, less than the cost of a single movie ticket and a tiny fraction of their cable bill – they can have unlimited access to nearly 20,000 movies and TV shows.

While many respondents complained about the weak streaming content, most seemed to understand that at such a low price point, they’re not going to get the latest, hottest movies like "Avatar.”

Like Miller, Tilson cited the unforeseen “virtuous cycle” where free-word-of-mouth buzz leads to more subscribers, which leads to more cash flow, which in turn gives them more money to acquire content.

If Netflix can keep adding subscribers at this rate, you may be able to cuddle up for The King’s Speech this year, rather than Miley Cyrus.

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.


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Trader disclosure: On Feb 14, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour Owns (AAPL); Seymour Owns (BAC); Seymour Owns (F); Seymour Owns (FXI); Seymour Owns (GE); Seymour Owns (POT); Seymour Owns (TSO); Seymour Owns (NOK) Call; Finerman's Firm Is Short (IWM); Finerman's Firm Is Short (SPY); Finerman's Firm Is Short (MDY); Finerman's Firm Is Long S&P Puts; Finerman's Firm Is Long Russell 2000 Puts; Finerman's Firm And Finerman Own (AAPL); Finerman's Firm Owns (BAC) Leap, Finerman Owns (BAC); Finerman's Firm Owns (BBY); Finerman's Firm And Finerman Own (BP); Finerman Owns (C); Finerman Owns (GOOG); Finerman's Firm And Finerman Own (HPQ); Finerman's Firm Owns (IBM); Finerman's Firm Owns (JPM), (JPM) Leap; Finerman Owns (JPM); Finerman's Firm Owns (M); Finerman's Firm Owns (MCD); Finerman's Firm And Finerman Own (MSFT); Finerman's Firm Owns (PLCE), (PLCE) Options; Finerman's Firm Owns (TGT); Finerman's Firm Owns (WMT); Finerman's Firm Owns (EBAY); Najarian Owns (BAC) Call Spread; Najarian Owns (C); Najarian Owns (DOW) Calls; Najarian Owns (F) Bonds, Calls; Najarian Owns (GE); Najarian Owns (GM); Najarian Owns (JPM) Call Spread; Najarian Owns (MS); Najarian Owns (PFE); Najarian Owns (YHOO); Najarian Owns (CLF) Call Spread; Terranova Owns (VRTS); Terranova Owns (C); Terranova Owns (PEP); Terranova Owns (UPL); Terranova Owns (GM); Terranova Owns (APA); Terranova Owns (CVI); Terranova Owns (SU); Terranova Owns (CNQ)

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