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Netflix steals Dreamworks from HBO

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Updated. Netflix (s NFLX) has signed an exclusive deal with Dreamworks Animation to stream the studio’s box office hits to its customers, the New York Times reported today. Dreamworks previously supplied the movies to HBO, (s TWX) but Netflix outbid the TV network, paying an estimated $30 million per film title.

Netflix won’t be able to stream Dreamworks titles until 2013, according to the Times. However, the deal will enable the service to offer both new content — Dreamworks is planning to release three new movies that year — as well as catalog titles like Kung Fu Panda. Also part of the package are TV specials produced by Dreamworks.

For Netflix, this partnership couldn’t come at a better time: Its handling of the spin-off of its DVD division, complete with a badly communicated price increase, not only angered consumers, who have been canceling in droves. Recent news that Netflix wasn’t able to renew its contract with Starz also didn’t exactly bode well with investors, and the company’s stock has taken a sharp dive from a high of $304 earlier this year to a low of $125 last week.

A high-profile deal like this one should help to ease the concerns of investors, even if it won’t be able to appease consumers right away. Netflix is signaling to both its investors and Hollywood that it doesn’t need to buy content from TV networks like Starz, but that it can compete with the likes of HBO by offering up heaps of cash direct to the studios.

The deal also comes with a bit of a sugar coating for Hollywood. From the Times story:

“HBO requires its studio partners to suspend digital sales of movies during its exclusive window, but Netflix will allow DreamWorks to keep selling digital downloads.”

Netflix knows that subscription revenue dwarfs digital digital download sales, but this concession is also part of a bigger business philosophy. The company’s chief content officer Ted Sarandos has said in the past that Netfix doesn’t actually like to do exclusive deals. It does so when it has to compete with the likes of HBO. However, it won’t spend extra to get online exclusivity, prefers instead to invest its money in other content deals.

Speaking of deals: Netflix CEO Reed Hastings said in his recent apology that “actions speak louder than words” to regain lost trust. This deal may have been a first big step towards that goal, and who knows? A few more deals like this one, and we might speak of Netflix as a comeback kid a few months from now.

Updated to clarify that Netflix struck the deal with Dreamworks Animation, not Dreamworks Studios.

11 Responses to “Netflix steals Dreamworks from HBO”

  1. How does an old story get covered again? Smells like Netflix PR to me. A few months ago there were a number of articles that covered that HBO let dreamworks out of it’s deal 2 years early because they are a pretty big cost for only 2 or 3 movies a year. Money they I’m sure HBO is choosing to invest in the next True Blood. Hardly a “steal”

  2. sperlingreich

    The reason this deal is pushed so far into the future (2013) is because Hollywood studios have output deals with pay TV networks such as HBO. DreamWorks Animation’s output deal with HBO doesn’t end until the end of 2012.

    These output deals will prove to be a real hurdle for Netflix. They won’t be able to obtain streaming rights from any of the studios for the pay TV window until the studios current output deals expire. This will likely prevent them from getting a deal with Sony and Disney directly since those two studios presently have output deals with Starz. Of course, as their current output deals expire, Netflix will be a welcome suitor for the pay TV streaming rights, especially since it will cause the licensing fees to increase.

      • To clarify further, it might be worth noting that HBO walked — and earlier than they were obligated to (“HBO even let DreamWorks out of its contract a year early so it could sign with Netflix, according to reports and a source with knowledge of the negotiations.” per Cnet)

        “Stole” is a massive overstatement.