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Paramount Home Media Distribution, a unit of Viacom Inc. (VIAB - Analyst Report), has entered into an agreement with Warner Bros. Home Entertainment Group, a unit of Time Warner Inc. (TWX - Analyst Report), to distribute the physical discs of 600 movies from Paramount’s stable. The deal is expected to enrich the long-term value of Paramount’s older movie titles. 

According to the terms of the deal, Time Warner will get the exclusive right to distribute the Blu-ray and DVDs of the selected 600 movies in the U.S. and Canada including the films like Terms of Endearment, Ferris Bueller’s Day Off, Airplane, and others. Flixster – the Warner Bros. movie streaming and discovery services will get the non exclusive right to sell the movies in Ultra Violet electronic sell through (EST), Ultra Violet Disc-to-Digital and Video On Demand (VOD) format.

Additionally, Flixster will also act as a dedicated locker access service provider for all paramount ultraviolet movies.  The three-year deal is expected to commence from the beginning of 2013.

On the flip side, Paramount will retain all digital rights for these titles including the EST, VOD and subscription video-on-demand format and doesn’t provide the rights to distribute blockbuster Paramount films like Transformers, Star Trek and Indiana Jones. As part of the deal, Viacom will receive licensing fees and will receive various long-term strategic co-operations from Flixster.

In the modern era of digitalization more and more subscribers now prefer to view movies online through their smartphones and tablets. We believe it’s a strategic move by Viacom to expand its digital presence through Flixter, which develops movie discovery applications for several social networking sites.

The agreement, if becomes successful, will promote its digital content ownership in addition to expanding its already impressive Ultra Violet library that necessarily allows streaming and downloading of content on multiple devices.     

We are maintaining our long-term Neutral recommendation on Viacom Inc. However, currently, the company retains a Zacks #3 Rank, implying a short-term Hold rating.

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