Bloomberg News

Netflix Reaches Streaming Pact With DreamWorks Animation

September 26, 2011

(Updates with closing stock prices.)

Sept. 26 (Bloomberg) -- Netflix Inc., the movie-rental service that angered customers after raising prices, gained rights to stream films from DreamWorks Animation SKG Inc., the maker of “Madagascar” and “Shrek.”

The agreement covers new releases from Glendale, California-based DreamWorks Animation starting in 2013, the companies said today in a statement. Netflix, the world’s largest online film-rental service, will replace the cable channel HBO as the studio’s partner.

The deal marks a high-profile addition to the Netflix library after the company’s talks to renew movies from the Starz cable channel broke down. Los Gatos, California-based Netflix estimates it lost more than a half-million U.S. customers after raising prices by 60 percent for those who purchased both online streaming and DVDs by mail. The company is splitting the business into two separate companies.

“This deal will be just one of a number of deals we’re likely to see over the next six months as Netflix continues to spend on streaming,” said James Cordwell, an analyst at Atlantic Equities in London who recommends buying the shares. “That will be what drives a return to stabilization and subscriber growth.”

Netflix and DreamWorks Animation didn’t disclose the financial terms of their agreement. Netflix, which has fallen more than 50 percent from a July 13 high of $298.73, rose $2.86 to $132.22 at 4 p.m. New York time in Nasdaq Stock Market trading. DreamWorks Animation gained 14 cents to $18.88 and has lost 36 percent this year.

Content Spending

Netflix has money to spend on content after failing to come to an agreement with Starz on deal that could have been worth $300 million, according to analysts at Piper Jaffray Cos. The company’s spending will rise to more than $2 billion in 2012 from about $800 million this year, according to Michael Pachter, an analyst at Wedbush Securities in Los Angeles.

The DreamWorks Animation deal probably won’t affect near- term customer churn at Netflix because it doesn’t add new films until 2013, Cordwell said.

The studio is scheduled to release three films theatrically in 2013: “The Croods” in March, “Turbo” in June and “Me and My Shadow” in November, according to a March 8 statement. Netflix will also have access to certain catalog titles such as “Kung Fu Panda” over time, the companies said.

The agreement, which is only for U.S. Netflix customers, lets DreamWorks Animation separately sell films electronically to consumers, according to Jeffrey Katzenberg, the studio’s chief executive officer.

Future Deals

“From a content owners’ point of view, this will allow us to get significantly greater value than we would have in a pay- TV deal,” said Katzenberg, who intends to discuss future deals with Google Inc., Amazon.com Inc. and other companies that are interested in content from Hollywood studios.

Time Warner Inc.’s HBO, which has added Summit Entertainment films to its premium-cable programming, agreed to allow DreamWorks out of contract that runs through 2014, paving the way for the move to Netflix, a person with knowledge of the situation said on July 24.

Netflix has signed digital distribution deals giving it streaming rights to films from Viacom Inc.’s Paramount Pictures, Lions Gate Entertainment Corp. and Miramax.

--Editors: Rob Golum, Ville Heiskanen

To contact the reporters on this story: Ronald Grover in Los Angeles at rgrover5@bloomberg.net; Michael White in Los Angeles at mwhite8@bloomberg.net; Alex Sherman in New York at asherman6@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net


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