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With big shows leaving service, Netflix will have to do better than comedy specials, analyst says

Key Points
  • New streaming services are taking back beloved series such as "Friends" and "The Office," forcing Netflix to pivot toward comedy specials and documentaries to drive viewing hours and ward off competition.
  • These licensed series are staples for Netflix in driving viewing hours between Netflix's original content series, such as "Stranger Things."
  • "As more streaming services launch NFLX is going to continue to lose its highest quality licensed content making the success of their own content increasingly important," Rosenblatt Securities internet and media analyst Mark Zgutowicz says in a note to clients on Wednesday.
Jennifer Aniston and Adam Sandler star in Netflix's "Murder Mystery," a comedy film about a New York cop and his wife who go on a European vacation to reinvigorate the spark in their marriage, but end up getting framed and on the run for the death of an elderly billionaire.
Netflix

Netflix might need to do better than comedy specials to keep its users on the platform, according to Rosenblatt Securities.

New streaming services are taking back beloved series from Netflix.

"With rising competition for scripted originals and key licensed content like 'The Office' and 'Friends' leaving the service soon, NFLX is increasingly pivoting towards comedies specials, documentaries to drive its share in viewing hours and fend off incoming competition," Rosenblatt Securities internet and media analyst Mark Zgutowicz wrote in a note to clients on Wednesday.

"As more streaming services launch, NFLX is going to continue to lose its highest quality licensed content making the success of their own content increasingly important," he said.

On Tuesday, WarnerMedia announced its new streaming service, HBO Max, will have exclusive rights to "Friends," stripping it from Netflix's library. This move follows NBCUniversal's announcement in June that it will remove "The Office" from Netflix and put it on its own streaming service in 2021.

These licensed series have been staples for Netflix in driving viewing hours between Netflix's original content series, such as "Stranger Things." "The Office" accounted for almost 3% of viewing hours in 2018 and "Friends" accounted for almost 2% of viewing hours in 2018, according to Zgutowicz.

These hours will be difficult to fill and Netflix's step into comedy movies and documentaries are not likely to drive significant gross adds, said Zgutowicz, but it keeps users engaged and potentially off other competitive platforms.

Despite the cautious outlook for Netflix, Zgutowicz raised his price target for the streaming service to $370 from $350. That was still below the $383 Netflix was trading at on Wednesday. Zgutowicz said to get more bullish on Netflix shares, he needs to see sustained 25% growth in revenue through the end of 2021.

Shares of Netflix are down more than 8% over the last 12 months, but the stock has soared more than 42% since the start of the year.

Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.

— CNBC's Michael Bloom contributed reporting.