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Author: TMFGebinr Big gold star, 5000 posts Top Recommended Fools Old School Fool Supernova Phoenix 1
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Subject: This is good -- NFLX Date: 12/5/2012 9:55 AM
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(Cross post from Stock Advisor.)

What: Shares of Netflix jumped up $10.65 (14.01%) to close yesterday at $86.65.

So what: It was the Disney deal. http://finance.yahoo.com/news/netflix-walt-disney-studios-an... Netflix and Disney announced in a joint press release that Netflix will acquire rights to the First Pay window of movies that are released in 2016. This was formerly owned by Starz (of Liberty Media, which explains its 6% drop today). Movies include anything made by Disney or its subsidiaries and released to theaters in 2016 and beyond. How far beyond is not known at this point (it says "multi-year" only). It is exclusive.

In addition, Netflix gains immediate access to older Disney content such as Dumbo, Pocahontas, etc. I don't know if this includes the older Pixar movies, but sure hope so.

Finally, it also includes the successful direct-to-video productions, which, if I'm reading the release correctly, will be streaming on Netflix as they come out, beginning in 2013.

All of this appears to be U.S. only.

As usual, price of the deal was not released (and won't be released). Personally, I'd be surprised if it was less than $300 MM per year once 2016 comes (note, this is a WAG). I hope this is for at least five years.

Note, this does not mean that Netflix will be the first place Disney's new movies will show up. Ahead of the First Pay window are (in order starting immediately after the theater release) Airplane/Hotel, DVD buy, Rent, Pay-per-view (e.g. iTunes or Amazon), then First Pay. "The first pay window is the first time a movie can be shown on a consumer platform (television, computer, tablet, mobile) to subscribers of a given service." Traditionally, that's meant HBO and its like. http://www.vodprofessional.com/features/a-guide-to-pay-windo...

Now what: This is a very encouraging result for Netflix, for several reasons. One, it shows that at least one major studio believes the company will be around and have enough customers a few years from now to make such a deal worth signing. Two, it shows that Netflix is a serious player and becoming more like a cable channel than before. Three, it helps differentiate Netflix from its competitors, both present (Hulu and cable channels) and future (Redbox/Verizon). Four, it is potentially a huge draw for subscribers because Disney content is so darn popular.

It's also a pretty big win for Disney. It is now working both sides of entertainment viewership: cable subscribers (ESPN, ABC, all the Disney channels) and cord cutters (streaming on Netflix).

This also potentially makes Netflix more valuable as an acquisition. Jason Moser and I were discussing how it might be a prelude to Disney just buying it, lock, stock, and barrel. We won't know, though, until that happens, if it does.

Regardless, it's a good move for the company. Now we just need to see subscriber growth boosted as it continues to work the virtuous circle of good content --> more subscribers --> afford more good content.

Cheers,
Jim
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