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Exclusive Licensing: Netflix-Disney Deal Sets New Standard for Future Releases

Published onFeb 15, 2013
Exclusive Licensing: Netflix-Disney Deal Sets New Standard for Future Releases

Despite logistical and financial setbacks in recent years, Netflix has reiterated its commitment to remaining a key player in the online streaming entertainment business by inking a deal with Walt Disney Studios, set to take full effect in 2016. The deal includes exclusive rights to all Disney films starting in 2016, with some older movies, such as Alice in Wonderland and Pocahontas, becoming available on Netflix immediately. Included in the deal are Disney, Walt Disney Animation Studios, Pixar Animation Studios, Marvel Studios, and Disneynature films, as well as Disney’s recent acquisition, Lucasfilm. Netflix already has a similar deal with The Weinstein Company and a limited one with DreamWorks Animation, and is expected to bid heavily to replace Starz as Sony’s exclusive distributor as well.

This is a marked shift from the norm with major studios, which typically consists of partnering with the bigger names in “pay TV” such as Starz, HBO, and Showtime for non-theater and non-DVD distribution. Starz itself has the rights to Disney films through the end of 2015, but was outbid by Netflix for the future licensing rights, meaning that it will lose almost half of its current content. An exclusive licensing agreement like this one is the first where a major studio has chosen online streaming over traditional pay TV. The agreement does not seem to bode well for premium pay TV and could very well signal the beginning of a move towards streaming all major content, especially if Netflix continues its quest to obtain similar licensing contracts with major studios, such as Sony.

Premium pay TV companies spend, on average, $20 million for exclusive rights to each film around the time of DVD release. However, the Netflix-Disney agreement, though unknown, is placed between $200 million and $300 million annually, far outpacing what HBO, Starz, and Showtime pay to studios, and making it even more likely that Netflix will procure other major exclusive licenses in the future, if it can afford such hefty annual payments. In addition, Netflix has begun producing its own original programming, such as “Lilyhammer” and “House of Cards,” further illustrating its plan to become a major competitor to pay TV providers. HBO currently has its own streaming option via HBOGo, but its library consists primarily of its own shows and movies, with only supplementary films from other licensing deals it has. The Netflix library is much broader, and once the company begins adding its own programming, will have even more draw for consumers.

The question that seems most on point with Netflix’s expansion is, what does this mean for subscriber costs? While the company seems to have been on the rebound since its Qwikster debacle in 2011, there is only so much the company can do without either a big increase in subscribers or a rise in the monthly cost of access to the site. It is arguable that procuring major labels will certainly increase subscribers, especially with deals such as this one with Disney, which have such a large library of content. However, the costs of just one such exclusive deal are enormous, and adding even two more per year at similar costs would have Netflix paying almost $1 billion annually for major studio content, not including other licensing agreements and the costs of its own original programming.

Whatever the ultimate outcome, there is sure to be a major set of changes in after-theater film delivery in the next several years. As more and more people stream their media on tablets, smartphones, or Rokus, the future of pay TV, or even cable TV itself, may be forced to meet consumer demand for access anytime, anywhere.

* Stephen C. Pritchard is a second year law student at Wake Forest University School of Law. He holds a Bachelor of Science in Information Systems and Operations Management, with minors in Economics and Political Science, from the University of North Carolina at Greensboro. Upon graduation, he intends to practice corporate and entertainment law.

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