Say this for the deal Netflix cut Tuesday for dibs on streaming Disney movies as soon as seven months after their theatrical release: It has given the battered company something positive to talk about after 18 months of getting hammered by its customers, the media and the market over its separation of disk and online digital services.
Chief Content Officer Ted Sarandos did just that yesterday at the UBS Global Media and Communications Conference in New York, calling the deal “a game changer,” report the Los Angeles Times’ Dawn C. Chmielewski and Ben Fritz. They point out that animated family fare plays well in any language -– “including in emerging markets such as Latin America, where children's programs are less available.”
And, according to Sarandos, "the movies that constantly performed well for us are those big, animated features. There's lots of repeat viewing. It’s a safe brand halo."
Netflix is also playing it safe with pricing, apparently. Reuters’ Lisa Richwine reports: “‘We are not contemplating’ raising the $8-a-month subscription fee for unlimited online viewing, Sarandos said during an interview with filmmaker Harvey Weinstein.”
The deal will replace one Disney has through 2016 with Starz and represents the first time a major studio is bypassing cable TV outlets. Indeed, it alters the competitive landscape.
“Subscription and on-demand services are becoming an important source of revenue for studios coping with shrinking DVD sales,” Bloomberg’s Cliff Edwards and Christopher Palmeri write. “Netflix, the online leader, is now a competitor to Starz, HBO and Showtime.”
Yes, “Netflix has caught Mickey and Minnie,” writes the Wall Street Journal’s Miriam Gottfried. “But it still faces hurdles in building a better mousetrap.”
For one thing, there’s the cost of the deal -- $300 million a year, which adds up to mucho shekels in any language. Then there’s the space/time continuum.
"The heart of the deal doesn't come into effect for more than three years," Macquarie Securities analyst Tim Nollen writes. “This isn't nearly close enough to shore up subscriber numbers, which we view as Netflix's No. 1 problem.”
The hed on David B. Wilkerson’s piece in MarketWatch puts another spin on the announcement, positing that Disney, in effect, is backing online streaming.
“Anytime you have a major studio doing something that’s a major departure like this, it’s significant. Especially with Pixar and Marvel in the mix,” S&P Equity Research analyst Tuna Amobi tells Wilkerson. “But then again, you’re talking about a company that has blazed trails in many digital areas, so if anyone was going to do it, it would be Disney.”
Netflix, which lost 800,000 subscribers in the third quarter of 2011 after splitting up its DVD and streaming services –- sharply raising prices in the process -- had already begun to gain some back, as TechCrunch’s John Biggs reported in May. And its stock is up 20% this year, as Forbes’ Louis Bedigian observes before quoting Richard Tullo, director of research at Albert Fried and Co., who “was unimpressed by the news.”
Says Tullo in a note to investors: “In our view, the NFLX deal with Disney takes the craft of PR to a high level as the company has a habit of issuing pressers and then lowering estimates over the last two years.”
Despite its woes, or perhaps because of them, other financial types believe that Netflix could be a good play.
In an SEC filing in late October, the eagle–eyed Carl Icahn disclosed that he has taken a stake in the company –- mostly call options --that could yield 9.98% of the company’s shares. “His motive for investing in Netflix got brief mention in the SEC filing, and mentions the view that the company could be an attractive acquisition candidate,” Forbes’ Eric Savitz wrote at the time.
Even before the deal with Disney, one commentator on Seeking Alpha who felt that Netflix should sell itself to, say, Google or Amazon wrote that the company “has a great brand in a great industry” and says “despite poor decisions over the past year the company, under the right management team, has the ability to increase margins to a level that will drive the sell price higher.”
As for Netflix CEO Reed Hastings, you may argue that his image has nowhere to go but up. CNET’s Greg Sandoval writes that he “is starting to look more like the guy who helped Netflix seize an early lead in Internet movie streaming and boost the company's share price last year above $300,” in fact, before giving a lot of space to Wedbush Securities analyst Michael Pachter, who says Netflix overpaid and that it "is likely playing a kind of shell game."
Call it what you will, “bringing Disney into the fold is a powerful marketing tool, and remember Netflix's strategy has always been about building market share,” observes Sandoval. “The bigger its audience, the more money it has to acquire movies and the harder it is for the studios to turn down the company's checks.”