Netflix outbids Starz to land rights to future Disney films
Contract starting in 2016 sends service’s stock price up 14%.
Netflix’s Internet video service has landed the U.S. rights to show Disney movies shortly after they leave theaters, a coup that could turn into a costly mistake if the deal doesn’t bring in more customers.
The multiyear licensing agreement announced Tuesday represents a breakthrough for Netflix as it tries to secure more exclusive programming for a popular service that streams video over highspeed Internet connections. The approach is making Netflix more like traditional pay-TV channels such as HBO, Starz and Showtime.
Financial terms weren’t disclosed, but analysts estimate that Netflix will pay The Walt Disney Co. more than $350 million annually. That’s a hefty bill that will require Netflix to accelerate its subscriber growth or consider raising its prices — something that management has said it doesn’t plan to do after rankling customers with rate hikes of as much as 60 percent last year.
Netflix is snatching the rights to the Disney movies from Starz, which had failed to reach terms on a new licensing agreement with Netflix. Losing access to Starz programming that included Disney movies earlier this year had been interpreted as a blow that diminished Netflix’s market value.
Investors applauded Netflix Inc. for trumping Starz to regain the Disney rights. Netflix shares surged $10.65, or 14 percent, to close Tuesday at $86.65, its highest closing price since April. That’s still far below its peak of nearly $305, reached around the time that Netflix announced it price increase in July 2011.
The stock of Starz’s owner, Liberty Media Corp., sank $5.49, or nearly 5 percent, to $105.56. Disney shares added a penny to $49.30.
Netflix CEO Reed Hasting is counting on more compelling movies and TV shows to attract more customers. The firm is hoping they will become loyal subscribers once they see how much video is available for just $8 per month — a price that undercuts the rates of most pay-TV channels. Furthermore, Netflix is available as a stand-alone service, while premium channels such as Starz require cable or satellite TV packages that average about $80 a month.
At the end of September, Netflix had 25.1 million Internet video subscribers in the U.S. through September, up from 21.5 million at the same time last year. Starz’s premium channel had 20.8 million subscribers at the end of September, up from 19 million a year ago.
Janney Capital Markets analyst Tony Wible said the licensing agreement was a sign of Disney’s long-term faith in Netflix, despite intensifying competition in streaming services from Amazon.com Inc., Comcast Corp. and Verizon Communications Inc.
The Disney agreement gives Netflix’s streaming service the exclusive U.S. rights to offer Disney’s live-action and animation movies during the period normally reserved for pay-TV channels. That period typically starts about seven months after movies leave theaters. The subscription service can then usually show the movies for an 18-month stretch. The Disney exclusivity does not extend to DVDs, a service Netflix is trying to phase out.
Starz retains the rights to Disney movies released through 2015, with Netflix picking them up on films released in 2016 and beyond. Disney’s directto-video movies will come to Netflix next year, while classic films such as “Dumbo” and “Alice in Wonderland” will be released to Netflix immediately.
It’s the first time that one of Hollywood’s major studios has sold the coveted first-run rights to Netflix Inc. instead of a premium TV network.
“It’s a bold leap forward for Internet television,” said Ted Sarandos, Netflix’s chief content officer.