As noted on this blog in the past, because of a combination of supplier power (movie studios, and Internet Service Providers – to some extent), intense competition (everyone from Amazon to Apple to various other players) and some management challenges, Netflix has been under a lot of pressure since last year.
Most recently, Carl Icahn acquired a stake in Netflix to add to Netflix’ pressure. Netflix then adopted a poison pill, etc.
But today, Netflix scored a major coup by buying streaming rights for Disney for what The LA Times estimates at about $300 annually. The deal gives Netflix access immediately to Disney’s older titles and classics such as “Dumbo” (this is what all the news articles are citing as an oldie classic). The short-term reaction has been very favorable. [The stock jumped and a lot of Netflix shorts lost some money, I think.]
And then starting in 2016, Netflix gets access to all new Disney titles “seven to nine months after they are first shown in theaters“, which is sooner than what Disney’s current partner Starz gets them. Interestingly, Starz didn’t renew Netflix’s contract earlier this year so this must be causing some happiness at Netflix right now. (As an aside, it wasn’t clear to me if the annual $300m payments start in 2016 or earlier.)
A couple of things could happen going forward.
a. Other studios’ willingness to sign deals with Netflix could be changed thanks to this deal…perhaps Disney’s deal with Netflix indicates that they see the “streaming light” and think that Netflix is a good bet? As a move against Amazon’s power in so many different areas? Perhaps…
b. This strengthens Netflix’ already strong offerings for kids (special and easy access to Netflix’s kids selections on its iPad app indicate, to me, that a lot of parents and/or kids watch a lot of Netflix. It would be interesting to see how much of the reported 30% of US peak ISP traffic attributed to Netflix consists of kids shows and movies…). So this may make Netflix more appealing…but to young families, further boxing it in.
While I love the convenience of Netflix and its basic premise, based on customers paying $8 a month, it is difficult to see how it can strike deals with most major studies and truly become a source of all video entertainment (TV shows + movies). Or can it? Today it has around 30 million subscribers globally. If they are all paying at least $8 a month, then Netflix is earning $240m a month * 12 ~ $3B a year. Is that enough to strike deals with all major studios?
Not sure if the economics work out.
Some of Netflix’s future direction and trajectory should become apparent based on which major studios Ted Sarandos, Netflix’s chief content officer, is able to sign up with, next.