Netflix gets more dangerous

TheWrap has an article by Brent Lang about the deal between Netflix and Epix:

A new pact between cable channel Epix and Netflix to stream movies online makes the video rental giant a pay TV player, whether it admits it or not. After this agreement, Showtime and HBO should start looking over their shoulders because, make no mistake, Netflix is playing on their turf. Under the agreement, Netflix subscribers will get to stream box-office hits such as The Last Airbender and Iron Man 2 ninety days after their premium pay-television and subscription deals.
And this move only builds on a similar arrangement the company made last month with Relativity, which gives Netflix the licensing rights to all movies on which Relativity controls distribution. That amounts to some fourteen movies over the next twelve months.
All of this dramatically increases the number of titles that Netflix offers its customers digitally, at a time when the company is trying to encourage subscribers to migrate away from by-mail delivery and towards online distribution.
Less than three years since the subscription rental company launched its streaming service with less than 2,000 titles of dubious quality, Netflix is clearly gambling that the future is digital. By turning its subscribers onto streaming, it will dramatically reduce its overhead. The company plans to spend $700 million on postage next year, on its way to $1 billion in postage fees in the next few years.
And, last quarter, it reported that 61 percent of its customers streamed all or part of a movie, up from 37 percent in the second quarter of 2009.
"This is part of who we are; a low-priced unlimited-subscription company, and our customers are reacting to an economic proposition and the completeness of value they get for their nine bucks," Ted Sarandos, Netflix's chief content officer, told TheWrap on Tuesday.
The flat rate that Netflix offers may not give customers first run episodes of Weeds or True Blood, but it comes with enough movies available for streaming and at a steep enough discount to put the rental service in heavy competition with premium cable movie channels.
"It represents a very big threat to HBO. They aren't serving different markets, they're competing for entertainment dollars on a subscription basis," Edward Woo, an analyst with Wedbush Morgan Securities, told TheWrap.
"I wouldn't say it cuts the cable cord, but it definitely shaves the cord," Tony Wible, an analyst with Janney Montgomery Scott, told TheWrap.
On Tuesday, however, Sarandos and Netflix chose to downplay their recent incursions into the pay television market. "You don't have to cancel anything or cut your cord," Sarandos told TheWrap. "Streaming provides a reason to have broadband, which cable needs, because you don't need faster internet to send email, but you do need it for great video service. It's a win-win and there's no evidence that it represents a threat. You can subscribe to Showtime and see every past episode of Dexter while you watch the current season, so it actually gives you a reason to subscribe," he added.

Rico says there's a bunch more here, if you care...
The New York Times has more in an article by Brian Stelter:

At a cost of nearly $1 billion, Netflix said that it would add films from Paramount Pictures, Lions Gate, and MGM to its online subscription service.
It was a coup, albeit a costly one, for Netflix, which knows it needs to lock up the digital rights to films as customers stop receiving DVDs by mail and start receiving streams via the Internet. The deal will start on 1 September.
Ted Sarandos, the chief content officer for Netflix, said he was essentially taking the “huge pile of money” that Netflix paid in postage for DVDs by mail, about $600 million this year, “and starting to pay it to the studios and networks.”
Wall Street analysts estimated that Netflix would pay about $900 million over the course of five years to Epix, a fledgling competitor to HBO that holds the rights to the film output of Paramount, Lions Gate, and MGM. Those payments are expected to help the money-losing Epix break even in the next fiscal year.
The Epix deal will add new releases like Iron Man and The Curious Case of Benjamin Button to Netflix’s catalog, greatly enhancing the streaming service that the company markets to subscribers as part of an $8.99 package, that also includes DVD deliveries. It was the second film deal for Netflix this summer, coming a month after a pact with Relativity Media, the firm run by Ryan Kavanaugh.
Netflix’s open checkbook demonstrates that internet streaming is clearly coming to the forefront in Hollywood, but in a carefully controlled manner. Mr. Sarandos said in an interview that the content deals were part of “our continued commitment to making streaming a better and better proposition for our subscribers.” Netflix’s future depends largely on cutting financial deals that keep those streams in place.
The company first took on the likes of Blockbuster with DVDs by mail. Then, in 2007, it set its sights on online streaming, but existing deals with pay television operators like HBO made it impossible to stream many of the biggest film releases. These deals preserve what is called the pay-television-window, which opens up about a year after a film is first released in theaters and gives HBO, Showtime, or Starz about ten months of screening (and, more recently, web streaming) time.
Pay television arrangements are important contributors to the bottom lines of Hollywood studios, helping them wring more money out of both blockbusters and flops. These arrangements rely on cable and satellite carriers to collect monthly payments. Accordingly, the movies that were initially available on the streaming service were mostly ones “you’ve never heard of”, Mr. Sarandos said. But, in 2008, the company cut an important deal with Starz that allowed access to widely known films from Sony and the Walt Disney Company. The payments to Epix will add more films. In doing so, it is essentially creating a new window for movie viewing, one that does not depend on cable or satellite carriers. “If you own content, you want to sell it to as many people as possible without blowing up your existing revenue streams,” said the Morgan Stanley analyst Benjamin Swinburne. At the same time, having Netflix in the marketplace puts pressure on cable and satellite providers “because you’ve got another bidder out there”, he said.
The two-year-old Epix is invisible to most consumers, because some big companies like DirectTV and Comcast don’t carry it. But it is preserving the deals it does have by carving out a three-month television window for films before they are available to Netflix subscribers.
Jon Feltheimer, the chief executive of Lions Gate, told analysts that “by creating this groundbreaking new window for their streaming service, we both protect our traditional M.S.O. customers and create a significant and guaranteed new revenue stream for our service.” M.S.O., or multiple system operator, refers to cable and satellite carriers.
Netflix says it prefers to be a distributor for pay television, not a competitor to it, and wants to license content from HBO and Showtime. HBO has the rights to Fox, Universal, and Warner films for at least the next four years.
Asked about the giant amount of content that Netflix was lacking because of HBO’s deals, Mr. Sarandos seemed to take a long-term view. “Every deal expires,” he said, “and every deal has to be renewed.”

Rico says things are gonna get strange on television and the internet; hide and watch.