* Disney movies will be available on Netflix starting 2016
* Deal sends Netflix shares soaring 14 percent
* Analysts estimate Netflix is paying more than $350 in deal
(Adds analyst on Liberty Media)
By Ronald Grover and Sue Zeidler
Dec 4 Walt Disney gave a much needed boost to
Netflix, becoming the first major Hollywood studio to use the
video service to bypass premium channels like HBO that
traditionally controlled the delivery of movies to TV
News of the deal, which enables Netflix to stream
Disney's first-run movies to its subscribers, boosted Netflix
shares by 14 percent.
Liberty Media Corp, whose Starz group now
distributes Disney movies on TV, fell almost 5 percent.
Investors saw the Netflix-Disney deal as an important
endorsement of the DVD rental and streaming service, which has
been struggling with slowing subscriber growth and higher costs
for content distribution.
Disney movies will be available for streaming on Netflix
starting in 2016, after its current deal with Liberty Media's
pay-TV channel Starz expires. The deal is for both new Disney
movies and library content such as "Dumbo" and "Alice in
"An exclusive deal with Disney differentiates the Netflix
content from Hulu Plus and Amazon Instant Video," said Anthony
DiClemente, an analyst with Barclays Capital.
But some analysts worried that Netflix paid too much to get
Disney's movies. Tony Wible, an analyst with Janney Montgomery
Scott, estimated in a report that Netflix paid more than $350
million a year for Disney's movies and said "we would not be
surprised if (Netflix) would need to raise capital".
By comparison, HBO agreed to pay an estimated $200 million
annually in its so-called "output," or movie licensing deal,
with 20th Century Fox earlier this year, according to the Los
The deal gives Netflix streaming rights to movies from
Disney's live-action and animation studios, including those from
Pixar, Marvel, and the recently acquired Lucasfilm. On Oct. 30,
Disney announced a $4 billion deal to purchase the famed studio
founded by George Lucas, which will now make new episodes in the
blockbuster "Star Wars" series.
"This deal brings to our subscribers some of the highest
quality, most imaginative family films being made today," Ted
Sarandos, Netflix's chief content officer, said in a statement.
"It's a leap forward for Internet television."
Movies from Steven Spielberg's DreamWorks Studios are not
included in the deal, as that studio distributes its movies
through CBS's Showtime on TV. Disney recently signed a
deal to distribute DreamWorks' films theatrically after the
studio's deal with Viacom's Paramount Pictures expired.
The deal allows Netflix to stream Disney movies beginning
seven to nine months after they appear in theaters, as Starz
does now under Disney's prior agreement. The deal does not cover
DVD rentals of Disney movies.
Disney said in November that it would shut down its own
video streaming service, Disney Movies Online, which had failed
to catch on with users. A message on the 'Disney Movies Online'
website said it would shut down on Dec. 31.
Netflix, which started its streaming business with mostly
older films, has been moving to add more original programming
and produces TV shows such as "Lilyhammer," which stars
"Sopranos" actor Steven Van Zandt as an American gangster who
starts a new life in Norway. The company also struck a
high-profile deal with actor Kevin Spacey for "House of Cards."
The Disney pact follows similar deals Netflix has inked for
new films with smaller studios, including Relativity Media, The
Weinstein company and DreamWorks Animation.
The agreements have saddled Netflix with nearly $5 billion
in contractual commitments over the next three years for deals
its made for streaming content, the company said in a recent
quarterly earnings report.
Netflix's struggles over the last year, which have included
missed subscriber guidance, an ill-fated attempt to split the
DVD and streaming operations, and a swooning stock price,
recently attracted the attention of billionaire activist
investor Carl Icahn.
Icahn disclosed in regulatory filings on Oct. 31 that he had
amassed a nearly 10 percent stake in the video company and
suggested it should pursue a sale. Netflix responded by adopting
a poison pill defense.
Losing Disney's movies means Starz is left with only Sony
Pictures for film content. The pay-TV channel cast the ending of
its agreement with Disney as its decision, saying it preferred
to use the money for original programming creation.
Liberty Media's shares will "rebound," said Vijay Jayant, an
analyst with International Strategy and Investment Group.
"We believe it was Starz' decision to remain prudent and
walk away from the bidding for Disney content," ISI said in a
report, estimating that it might have cost Starz $400 million to
keep the movies.
Without that expense, Starz can step up its production of
original series such as "Spartacus" and "Magic City," which ISI
said have become more valuable to cable operators anyway.
Netflix shares jumped $10.6491, or 14 percent, to $86.6491.
Liberty Media shares fell $5.49, or almost 5 percent, to
(Reporting By Ronald Grover; Editing by David Gregorio; Editing
by Peter Lauria, Tim Dobbyn, David Gregorio and Jeremy Laurence)