NetflixA few years ago, major film studios didn't have much incentive to jump into bed with online movie rental service Netflix (NFLX). They generated hefty revenue from cable and satellite outlets for licensing their movies as on-demand titles, and most TV networks developed their own online streaming strategies. NBC and Fox, for example, launched joint-venture streaming site Hulu.com in 2007.

What could Netflix, an odd little Silicon Valley outsider, offer studios that the Comcasts (CMCSA) of the world couldn't?

Well, a lot of cash, for one. Netflix boasts an audience of 12 million, all of whom pay a monthly fee to rent DVDs and watch movies instantly on their TVs, computers or iPads. And since DVD sales are dwindling, studios are increasingly looking to digital distribution as a serious revenue stream.

Protecting DVD Sales

On Friday, Netflix renewed deals with both 20th Century Fox and Universal Studios that give subscribers continued access to premium titles. And in the case of Fox, viewers can now stream Fox-owned programs such as Bones, 24 and King of the Hill instantly.

There's one hitch, though: New-release DVDs won't become available until after a 28-day window. The majority of DVD sales happen in the first four weeks after the product's release, so by keeping a 28-day no-rental period, studios may still protect their sales.

The deals echo a similar arrangement made with Time Warner in January, which also has a 28-day window in which Netflix is barred from making new releases available. (Rumors have it that Netflix was trying to get a 50% cut in DVD prices in exchange for agreeing to the 28-day delay.)

By contrast, Blockbuster, one imagines, must pay a sweeter price to studios like Sony and Fox to have access to new releases on the day they go on sale. The downside? The company faces possible bankruptcy.

Sweetheart Deal Extended

When Netflix first signed its streaming deal in 2008 with Starz, a subscription cable channel, it got instant access to thousands of titles, including Disney ones, in what some have characterized as a sweetheart deal. Starz treated Netflix as a distributor or an affiliate when it negotiated the deal, which meant that Netflix didn't have to secure licensing agreements with individual studios that produced the content broadcast on Starz.

The arrangement was up in the air earlier this year, when Disney reportedly wanted Netflix subscribers to pay premium fees for its content. Some analysts worried that Netflix would be left out in the cold when Disney's distribution agreement with Starz expires in 2012. Concerns eased last month when the deal was extended through 2015.

Increase your money and finance knowledge from home

Investing Like Warren Buffett

Learn from one of the world's best investors.

View Course »

What Is Your Risk Tolerance?

Answer the question "What type of investor am I?".

View Course »

Add a Comment

*0 / 3000 Character Maximum