Netflix's Internet video service has landed the U.S. rights to show Disney movies shortly after they leave theatres, a coup that could turn into a costly mistake if the deal doesn't bring in more customers.
The multiyear licensing agreement announced Tuesday represents a breakthrough for Netflix as it tries to secure more exclusive programming for a popular service that streams video over high-speed Internet connections. The approach is making Netflix more like traditional pay-TV channels such as HBO, Starz and Showtime.
Financial terms weren't disclosed, but analysts estimate that Netflix will pay Disney more than $350 million annually. That's a hefty bill that will require Netflix to accelerate its subscriber growth or consider raising its prices, something that management has vowed not to do after rankling customers with rate hikes last year.
Netflix is snatching the rights to the Disney movies from Starz, which had failed to reach terms on renewing a separate licensing agreement with Netflix. Until February, Netflix's streaming service had access to Disney movies through that Starz deal. The loss had been interpreted as a blow that diminished Netflix's market value.
Investors applauded Netflix Inc. for trumping Starz to get the Disney rights directly from The Walt Disney Co., and for winning an exclusive provision that shuts out Starz and other rivals.
Netflix shares surged $10.65, or 14 per cent, to close Tuesday at $86.65, its highest closing price since April. That's still far below its peak of nearly $305, reached around the time that Netflix announced it price increase in July 2011. Rates went up as much as 60 per cent for those who wanted to stream Internet video and keep receiving DVDs through the mail, too.
The stock of Starz's owner, Liberty Media Corp., sank $5.49, or nearly 5 per cent, to $105.56. Disney shares added a penny to $49.30.