As expected, Netflix is continuing to strengthen its streaming movie service. It inked a new deal this week with Paramount Pictures, Lions Gate and MGM, which will allow its customers to view their movies through the Internet a few months after they hit pay tv. Earlier this year, it made a similar deal with 20th Century Fox and Universal for quicker and broader streaming distribution of their films. Netflix's latest move to enhance its streaming content was expensive, however. Was the deal a good one?
Through this new deal, Netflix will be able to stream movies from the three studios three months after they appear on pay television. That lag isn't great, but the play here is more to expand the Netflix library than to compete with release date. After all, Netflix's impatient subscribers can still obtain these films by mail before they even hit pay TV.
But that streaming library expansion comes as a pretty big cost. Is it worth the close to $1 billion in licensing fees over five years Netflix will pay? It's hard to say, but Netflix obviously thinks the deal is a good one or the company wouldn't have agreed to it.
These studios have a pretty significant library of films. On those titles, Netflix will now save some money on DVD/Blu-ray inventory and shipping. Its service will also be more attractive to potential customers who want to utilize instant streaming. Suddenly, Netflix subscribers will effectively have a much wider range of films in their personal library, since they can watch the movies anytime they want.
This is also a nice move for the three studios. A few years ago, they created a TV channel called Epix, which never really took off. The deal is technically with this joint venture. New York Times' Media Decoder reports:
Epix has the rights to films from Paramount, Lions Gate and MGM. But in a crowded marketplace, the service has gained very little distribution on cable and satellite systems, making it invisible to most consumers. Viacom, one of the owners of Epix, disclosed last week that the joint venture continues to lose money, though it said that the service is moving closer to the break-even point.
Since Epix can't seem to squeeze into many cable and satellite systems' already crowded channel lineups, it found a way to make money by distribution through Netflix instead. This deal serves as a way for the studios to make Epix more profitable, despite its weak viewer reach.