August 11, 2010, 2:54 PM

Netflix secures exclusive streaming rights to more major films

Films are available after 90-day pay-TV window expires in a deal with studio-supported Epix.

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Netflix Inc. signed a five-year agreement with Epix that makes the premium movie channel’s library of films available to Netflix subscribers to instantly stream to their computers or televisions. The agreement greatly expands Netflix’s “Watch Instantly” streaming video library.

Epix, a fledgling premium pay movie channel available in about 4 million homes, is a joint venture among Paramount Pictures, Metro-Goldwyn-Mayer and Lionsgate studios. Combined with agreements made with other companies, the new agreement provides Netflix subscribers streaming video access to about 46% of new Hollywood movies, a Netflix spokesman says. The Epix agreement preserves a 90-day pay-TV window, which means the films are available about three months after their debut on pay TV.  Epix films will be available Sept. 1.

Netflix, No. 14 in the Internet Retailer Top 500 Guide signed a similar distribution agreement with Starz in 2008. In July, it signed a deal worth more than $100 million a year with Relativity Media that makes films available to stream at the same time they hit pay TV. Netflix launched the Watch Instantly service in 2007 with 2,000 mostly older titles.

“Adding Epix to our growing library of streaming content, as the exclusive Internet-only distributor of this great content, marks the continued emergence of Netflix as a leader in entertainment delivered over the web,” says Ted Sarandos, chief content officer at Netflix. The company says last year 61% of its approximately 15 million subscribers streamed a TV show or film online.

Netflix is the No. 3 paid video provider in the country after Comcast and Time Warner, according to Forrester Research. Netflix’s latest deal makes it a greater threat to cable TV providers, says James L. McQuivey, a Forrester analyst. “There’s going to be a gradual awareness on the part of consumers that the premium movie channels they pay for on cable are not as necessary as they used to be,” he says.

Josh Bell, executive director of research firm Interpret says the move is about preparing for what’s next. “People are still renting DVDs. Streaming might not take over tomorrow but that is certainly in its future,” he says. Research documents Netflix’s growth in streaming video. Among all consumers who streamed online video in the last three months, 19% report using Netflix’s streaming service during the first quarter of 2010 compared with 14% in Q1 2009, Interpret says.

Neither Netflix nor Epix commented on the financial terms of the deal. But when an analyst asked Lionsgate CEO Jon Feltheimer about a report that Netflix would pay Epix $1 billion over five years Feltheimer replied that number was “mostly in the ballpark.”

If the $1 billion figure is accurate, McQuivey says it would be a fair price for Netflix, considering how it helps Netflix lock up the streaming video market. “Netflix is going to try to get more revenue out of this deal, not to pay Epix, but to be able to go out to other studios to secure the rest of what they need,” he says. McQuivey predicts Netflix will charge more for the streaming service by early 2011, perhaps by charging more to receive a higher-quality video stream or by limiting the newest releases to subscribers willing to pay extra.

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