Netflix (NFLX) is snatching away several movies a year that would have gone to pay TV outlets such as HBO or Showtime, under a deal with film financier Relativity Media announced Tuesday.
The deal, worth more than $100 million per year, highlights Netflix's strategy to migrate customers from ordering DVDs by mail to accessing them online over personal computers, game consoles, Blu-ray players, mobile devices and TVs.
Relativity plans to supply 12 to 15 films per year starting in early 2011, although the deal accommodates up to 30, with Netflix paying per movie. The initial movies include "The Fighter," starring Christian Bale, Mark Wahlberg and Amy Adams, and "Season of the Witch," starring Nicolas Cage. Both movies are set to hit theaters later this year.
Will More Online Movies Put Pressure on Cable?
Netflix's online streaming service already offers newer movies from The Walt Disney Co. (DIS) and Sony (SNE) through a 2-year-old deal with Starz Entertainment, a cable channel that has sublicensed some of its movie rights to Netflix.
Netflix's popularity has grown while DVD sales have fallen, so it has had to adjust its relations with Hollywood studios. It recently agreed to delay renting movies from 20th Century Fox, Warner Bros. and Universal Pictures until 28 days after their release on DVD to help the studios protect those DVD sales.
While Relativity's movies do not include major studio blockbusters, streaming newer movies during periods usually reserved for pay TV could put new pressure on premium cable channels such as HBO, whose parent, Time Warner (TWX), also owns movie studio Warner Bros.
However, the premium channels have shifted some of their focus away from movies and to original content such as HBO's "True Blood" or Showtime's "Dexter."
Relativity: Small Dent for HBO
HBO, Epix and Starz also have online streaming versions of their product, which they offer to subscribers for free.
In HBO's case, losing one or two Relativity-produced movies a year will put only a small dent in its business, as HBO receives about half of Hollywood's output every year.
Although DVDs by mail remain the largest part of Netflix's business, the company aims to expand its online service to save on postage costs and gain new customers.
The company has 13 million members paying at least $8.99 a month to get DVDs by mail and unlimited access to the streaming catalog. It aims to have 15 million subscribers by the end of the year. Netflix says that 60 million U.S. homes have Netflix-ready devices and a broadband Internet connection needed to stream video to TVs.
"Now we've just got to give them a reason to connect all the wires," says Ted Sarandos, Netflix' chief content officer.
A Long Wait for Streaming Netflix Viewers
Although Relativity co-finances a wide range of pictures from Universal Pictures and Sony Pictures, only movies that it has financed fully on its own or made through its subsidiary Rogue Pictures are included in the deal.
That would include the romantic drama "Dear John," but exclude some studio-backed films such as "Robin Hood" and "Get Him to the Greek."
Relativity's movies will be made available for streaming on Netflix during the traditional "pay TV" window - starting about a year after a title opens in theaters. That's a few months later than the movies' availability on DVDs and in rental outlets.
A Better Deal for Relativity
Netflix is paying more than pay TV outlets generally do for movies, according to a person familiar with the deal, who was not authorized to speak publicly and did so on condition of anonymity. The person said Relativity also is allowed to sell digital copies of movies through outlets such as Apple Inc.'s iTunes store and Amazon.com Inc. while they are being streamed, activity that is normally prohibited in pay TV deals.
About one-fifth of Netflix's 100,000 movie and TV show titles can now be streamed online.
Shares of Netflix, based in Los Gatos, rose 19 cents to close Tuesday at $107.27.