Netflix out­bids Starz to land rights to fu­ture Dis­ney films

Con­tract start­ing in 2016 sends ser­vice’s stock price up 14%.

Austin American-Statesman - - BUSINESS - An­a­lysts es­ti­mate that The Walt Dis­ney Co. will re­ceive more than $350 mil­lion an­nu­ally from Netflix in the deal, which be­gins in 2016. Netflix CEO Reed Hast­ing is count­ing on more com­pelling movies and TV shows to at­tract more cus­tomers.

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 Ama­ 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.

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