Yesterday’s announcement that Netflix Inc. (NASDAQ: NFLX) would get exclusive rights from The Walt Disney Co. (NYSE: DIS) for studio films beginning in 2016 sent Netflix shares sharply higher in the afternoon. The blush is off today, though, as some dollar figures are being attached to the deal.
A report at the Los Angeles Times cites a person “close to the matter” as saying that Netflix will pay Disney in excess of $300 million a year for the three-year run of the deal. Starz, a cable channel owned by Liberty Media Corp. (NASDAQ: LMCA), holds the Disney rights at a reported cost of $200 million a year through 2015.
Starz has been touted as a spin-off from Liberty and once the spin-off is completed there is every likelihood that Starz will be sold. Starz and Liberty’s Encore networks has had its hands full with competitors Time Warner Inc.’s (NYSE: TWX) HBO and Showtime from CBS Corp. (NYSE: CBS). A company with a huge long-term obligation like the Disney deal is not particularly attractive to potential buyers.
For Netflix, the reported cost of the Disney could be a real issue unless the company succeeds in building subscribers or raising suscriber fees or both for its Internet streaming service. Netflix has made no secret that it will pursue exclusive deals and original programming, both very costly strategies.
One thing the Disney deal may do is scare off Carl Icahn, particularly if Netflix also goes after a similar licensing deal with Sony Corp. (NYSE: SNE), which also has an exclusive deal with Starz that ends in 2015.
Another player to watch out for is Amazon.com Inc. (NASDAQ: AMZN), which signed a deal with cable channel Epix after the cable outlet owned by Viacom Inc. (NASDAQ: VIAB), Lions Gate Entertainment Corp. (NYSE: LGF), and Metro-Goldwyn-Mayer Inc. ended its exclusive deal with Netflix. If Netflix can also grab an exclusive deal with Sony, Amazon may be forced to charge customers separately for streaming instead of folding it into the Amazon Prime service. Remember, Amazon is reportedly selling its Kindle devices at no more than very slim margins.
The Disney deal was a big one for Netflix. The votes are still out on whether it was the right deal.
Shares of Netflix are down 2.5% today at $84.48 in a 52-week range of $52.81 to $133.43.
Paul Ausick
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