Netflix to get Disney films in TV distribution deal

Tue Dec 4, 2012 8:51pm EST
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By Ronald Grover and Sue Zeidler

(Reuters) - Walt Disney gave a much needed boost to Netflix, becoming the first major Hollywood studio to use the video service to bypass premium channels like HBO that traditionally controlled the delivery of movies to TV subscribers.

News of the deal, which enables Netflix to stream Disney's first-run movies to its subscribers, boosted Netflix shares by 14 percent.

Liberty Media Corp, whose Starz group now distributes Disney movies on TV, fell almost 5 percent.

Investors saw the Netflix-Disney deal as an important endorsement of the DVD rental and streaming service, which has been struggling with slowing subscriber growth and higher costs for content distribution.

Disney movies will be available for streaming on Netflix starting in 2016, after its current deal with Liberty Media's pay-TV channel Starz expires. The deal is for both new Disney movies and library content such as "Dumbo" and "Alice in Wonderland."

"An exclusive deal with Disney differentiates the Netflix content from Hulu Plus and Amazon Instant Video," said Anthony DiClemente, an analyst with Barclays Capital.

But some analysts worried that Netflix paid too much to get Disney's movies. Tony Wible, an analyst with Janney Montgomery Scott, estimated in a report that Netflix paid more than $350 million a year for Disney's movies and said "we would not be surprised if (Netflix) would need to raise capital".

By comparison, HBO agreed to pay an estimated $200 million annually in its so-called "output," or movie licensing deal, with 20th Century Fox earlier this year, according to the Los Angeles Times.   Continued...

A sign is shown at the headquarters of Netflix in Los Gatos, California September 20, 2011. REUTERS/Robert Galbraith