Something always seems to be a little weird when Netflix announces big news about itself — and today’s unveiling of its streaming deal with DreamWorks Animation is no exception. The news appeared to have been handed to The New York Times; it had the first story as well as interviews with executives from both companies. But that’s not the problem: What’s curious is why The Times felt confident enough to say that unnamed “analysts estimate (the deal) is worth $30 million per picture to DreamWorks.” Although there were no details to support that estimate, it quickly became perceived as a fact. For example, a Reuters story stated that the deal is “worth $30 million per picture to DreamWorks over a number of years.” If that’s true, then it’s a big deal; HBO currently pays the studio about $20M per picture. If the $30M figure for the Netflix deal is accurate, then Caris & Co analyst David Miller says his 2013 earnings estimate for DreamWorks “would therefore improve from $1.58 (per share) to $1.70.”
OK, so is it true? The companies don’t say: Many hours after the Times story ran, Netflix and DreamWorks jointly filed a press release that said “financial terms of the agreement were not disclosed.” But some analysts find the $30M figure hard to believe. Susquehana Financial Group’s Vasily Karasyov writes this morning that “we would be surprised if the terms for (DreamWorks Animation) are more favorable than those of their current deal with HBO. We think the change in pay TV partners was due to HBO shifting away from animation and not because (Netflix) offered significantly superior terms.” Janney Capital Markets’ Tony Wible also says that “it appears (DreamWorks) was kicked out of HBO and that (Netflix) was the buyer of last resort.”
This might be nit-picking if it didn’t seem to fit Netflix’s pattern of over-the-top spinning. Netflix issued just a bare-bones press release in July to announce news that infuriated consumers — that the company was splitting its streaming service from the DVD rental one in a way that would raise prices by 60% for those who wanted to continue to have both. That plus the disclosure this month that subscriptions are down more than expected sent Netflix stock plunging; it’s off 56.5% since mid-July. But when CEO Reed Hastings recently decided to apologize, and release news about the rebranding of the DVD service as “Qwikster,” he did it in a blog post — not a detailed release or SEC filing — leaving many investors hungry for details. Several analysts also chafe at the way Netflix handles its quarterly earnings calls: Instead of allowing participants to ask questions directly, the way the vast majority of companies do, Netflix requires them to email their queries so a staffer can pose selected ones to Hastings — depriving analysts of the opportunity to ask follow-ups. Potentially making matters worse, Netflix has told the SEC that it wants to stop disclosing gross subscriber additions, churn, and subscriber acquisition costs. Since customers can join and quit whenever they want, Netflix says that churn “could be viewed as a negative business development” even though the company believes it’s cost effective — and adds that “investors do not necessarily consider churn an important metric for measuring the performance of a subscription business.”
After all that, perhaps it shouldn’t be a surprise that many investors are skeptical about Netflix’s new deal with DreamWorks Animation. “It gives them both ammunition to spin for two stocks that have been on the decline,” Wible says. Shares of both companies popped this morning, but then fell to slightly below their Friday closing prices. Netflix is off 21.7% over the last 12 months while DreamWorks is down 42.9% for the year-long period.
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