Thread: Netflix to Pay Nearly $1 Billion to Add Films to On-Demand Service

Netflix to Pay Nearly $1 Billion to Add Films to On-Demand Service
By BRIAN STELTER

At a cost of nearly $1 billion, Netflix said on Tuesday that it would add films from Paramount Pictures, Lions Gate and MGM to its online subscription service.

It was a coup — albeit a costly one — for Netflix, which knows it needs to lock up the digital rights to films as customers stop receiving DVDs by mail and start receiving streams via the Internet. The deal will start Sept. 1.

Ted Sarandos, the chief content officer for Netflix, said he was essentially taking the “huge pile of money” that Netflix paid in postage for DVDs by mail — about $600 million this year — “and starting to pay it to the studios and networks.”

Wall Street analysts estimated that Netflix would pay about $900 million over the course of five years to Epix, a fledgling competitor to HBO that holds the rights to the film output of Paramount, Lions Gate and MGM. Those payments are expected to help the money-losing Epix break even in the next fiscal year.

The Epix deal will add new releases like “Iron Man” and “The Curious Case of Benjamin Button” to Netflix’s catalog, greatly enhancing the “Watch Instantly” streaming service that the company markets to subscribers as part of an $8.99 package that also includes DVD deliveries. It was the second film deal for Netflix this summer, coming a month after a pact with Relativity Media, the firm run by Ryan Kavanaugh.

Netflix’s open checkbook demonstrates that Internet streaming is clearly coming to the forefront in Hollywood, but in a carefully controlled manner. Mr. Sarandos said in an interview Tuesday that the content deals were part of “our continued commitment to making streaming a better and better proposition for our subscribers.”

Netflix’s future depends largely on cutting financial deals that keep those streams in place.

The company first took on the likes of Blockbuster with DVDs by mail. Then, in 2007, it set its sights on online streaming, but existing deals with pay TV operators like HBO made it impossible to stream many of the biggest film releases. These deals preserve what is called the pay television window, which opens up about a year after a film is first released in theaters and gives HBO, Showtime or Starz about 18 months of screening (and, more recently, Web streaming) time.

Pay TV arrangements are important contributors to the bottom lines of Hollywood studios, helping them wring more money out of both blockbusters and flops. These arrangements rely on cable and satellite carriers to collect monthly payments.

Accordingly, the movies that were initially available on the “Watch Instantly” service were mostly ones “you’ve never heard of,” Mr. Sarandos said. But in 2008 the company cut an important deal with Starz that allowed access to widely known films from Sony and the Walt Disney Company. The payments to Epix will add more films.

In doing so, it is essentially creating a new window for movie viewing, one that does not depend on cable or satellite carriers. “If you own content, you want to sell it to as many people as possible without blowing up your existing revenue streams,” said the Morgan Stanley analyst Benjamin Swinburne.

At the same time, having Netflix in the marketplace puts pressure on cable and satellite providers “because you’ve got another bidder out there,” he said.

The two-year-old Epix is invisible to most consumers because some big companies like DirectTV and Comcast don’t carry it. But it is preserving the deals it does have by carving out a three-month TV window for films before they are available to Netflix subscribers.

Jon Feltheimer, the chief executive of Lions Gate, told analysts Tuesday that “by creating this groundbreaking new window for their streaming service, we both protect our traditional M.S.O. customers and create a significant and guaranteed new revenue stream for our service.” M.S.O., or multiple system operator, refers to cable and satellite carriers.

Netflix says it prefers to be a distributor for pay TV — not a competitor to it — and wants to license content from HBO and Showtime. HBO has the rights to Fox, Universal and Warner films for at least the next four years.

Asked about the giant amount of content that Netflix was lacking because of HBO’s deals, Mr. Sarandos seemed to take a long-term view. “Every deal expires,” he said, “and every deal has to be renewed.”

Originally Posted by LAM

the TV in the family room is LG and I was going to stay with that to take advantage of the Simplink feature to keep everything on one remote.

how far away is your BD-370 from the wireless router? no issues with Netflix?

My BD-370 is on ethernet, I ran a few cables around the house (outside through brick) but the router is actually a couple feet away. I haven't tried hacking in wifi functionality, wired is 'better' for latency, its full duplex and wifi is not, and bandwidth, and since I can run the cable myself I had no reason to really try to get it working that way.

Wired, no issues streaming Netflix. It will cache about 8 seconds or so roughly, and works great from there. I guess one complaint is my que cannot be categorized or sorted, the only sorting I can sort of do, is add things to the top of the instant que when I login through the web. I can explain further if needed but all in all it works great. I have 160ish videos in instant que that I've seen through the box, seasons of TV shows (Little Brittain etc) and movies too.