Chief Content Officer at the streaming media juggernaut known as Netflix (NFLX - Free Report) , Ted Sarandos, wrote in a blog post yesterday that the company will not be renewing its distribution deal with Studio 3 Partners’, a Viacom (VIAB - Free Report) subsidiary, cable network Epix. This means Netflix’s US subscribers will only have one more month to watch Hunger Games: Catching Fire, World War Z, Transformers: Age of Extinction, Star Trek: Into Darkness, and many more blockbuster films.
On the surface, the loss of major Hollywood films from any media library is something no company like Netflix prefers. Some of the movies leaving at the end of September did extremely well at the box office. Furthermore, the company ended the day 2.24% down and is currently trading a little more than 1% down after closing, which may be related to the news yesterday.
However, the state of Netlfix is not one of anarchy like the worlds in Hunger Games: Catching Fire, World War Z, or Transformers: Age of Extinction in light of this breakup. Let’s examine 3 critical factors to why Netflix will be just fine losing their contract with Epix.
1.) The Contract Was Not Exclusive
From Variety.com, to Fourtune.com, to Recode.net, all articles have stated that the Netflix-Epix deal, signed in 2010, was not one of exclusivity. In 2012, Amazon (AMZN - Free Report) and Epix signed a deal for Amazon Instant Video to stream movies from the Epix library. Having exclusive rights to a media library is critical in the streaming video marketplace. Nonetheless, this overlap in content has been going on for roughly 3 years now and has not negatively affected the profits of either Netflix or Amazon.
If this was still an exclusive deal between the two parties, as well as occurred during the time when Netflix lost its deal with Starz in 2011, the sentiment of this entire article would probably be different. However, that prior scenario is not the reality and Netflix has grown immensely since 2011, primarily due to the trend in cord cutting by many Americans.
2.) Deal With Disney Effective in 2016
This may turn out to be the most important reason of the three once 2016 becomes the present day. Mr. Sarandos writes in his post, “Starting next year, we will be the exclusive US pay TV home of the latest theatrical movies from the The Walt Disney Company (DIS - Free Report) , including Pixar, Lucasfilm and Marvel movies. The majority of these films will arrive on Netflix faster than traditional arrangements had previously allowed.”
Netflix may be losing the latest film in the alternate-reality incarnation of the Star Trek franchise. They will be gaining the exclusive rights to the Star Wars franchise, the Marvel cinematic universe, and all the acclaimed Pixar animated filmography. A deal with the Mouse is more often than not the wiser choice when selecting between Disney and Epix.
3.) Original Content Above All Else
Netflix announced in its latest earnings report that it will be heading into the film industry by producing its own films. For some odd reason, Mr. Sarandos wanted to highlight the pending 4 Adam Sandler comedies, especially went many of the recent Happy Madison productions have been critical flops (Paul Blart: Mall Cop 2 somehow made over $70 million domestically. I wish I could explain this).
The more notable and intriguing film in production is titled Beasts of No Nation, from True Detective director Cary Fukunaga and starring Idris Elba (Mandela, Luther, The Wire). Mr. Sarandos also notes an upcoming documentary on Keith Richards titled Keith Richards: Under the Influence from Oscar-winning filmmaker Morgan Neville, which will arrive on September 18th of this year.
The company has also had a nice run of success with originally produced series and series that Netflix owns the exclusive rights to. Netflix wants to be HBO, producing an array of critically acclaimed, and somewhat niche content for a number of different viewership demographics and groups.
Netflix does not make its money from its blockbuster movie collection, rather its diverse and enormous collection of culturally important older television programs. Why would I want to watch same cookie-cutter police procedural or network comedy programs when series such as 30 Rock, The X-Files, Twin Peaks, Breaking Bad, Friends, Bob’s Burgers, The Twilight Zone, Star Trek: The Next Generation, Dr. Who, It’s Always Sunny In Philadelphia, Louie and so many other notable series are all on Netflix.
Instead of any of the Hunger Games films, I can watch Battle Royal (same premise) – instead of World War Z, I can watch The Walking Dead (both about zombies) – instead of Star Trek: Into Darkness, I can watch Star Trek II: The Wrath of Khan (SPOILER ALERT: same movie).
The only way Netflix will be in serious trouble is if it begins losing television series such as the ones mentioned above, or if the company begins to increase monthly rates without providing quality content and better services. Other than that, Netflix will still remain king of the streaming content landscape.
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