Why DreamWorks Animation & Netflix Near Exclusive Online Streaming Deal

Netflix reports its earnings and then will talk with Wall Street analysts tonight, and Dreamworks Animation does the same tomorrow. Both might benefit if they can announce a deal that would provide online streaming rights for Dreamworks’ films exclusively to Netflix in the pay TV window. Dreamworks hasn’t been able to cash in on the growing market for digital streaming so far. HBO controls those rights in the pay TV window through 2014. HBO may let DreamWorks out of that agreement early according to Bloomberg which broke the story about the deal with Netflix.

Wall Street is eager to see the details — especially how much Netflix is willing to pay for the Dreamworks rights — to determine whether Netflix “won a (Dreamworks) deal or was the buyer of last resort,” Janney Montgomery Scott analyst Tony Wibble says this morning. Investors also want to know whether the deal diminishes the chance that someone will buy Dreamworks. If HBO is willing to let the company out of its pay TV deal then that would suggest there’s a “low probability” that Time Warner might be interested, Lazard Capital Markets’ Barton Crockett says.

There’s no question that Dreamworks Animation desperately needs an upbeat story to tell. The value of the company’s stock has fallen 28.6% in 2011. Investors are wondering how CEO Jeffrey Katzenberg’s studio will profit from the two films Dreamworks typically releases each year — especially as doubts grow about whether it will renew the distribution deal with Paramount that expires the end of 2012. He has tried to make each film count by releasing them in 3D – which comes with higher ticket prices – and by pushing home video sales. He has watched helplessly, though, while ticket buyers lost their enthusiasm for 3D and industry-wide DVD sales began to plummet. Recent Dreamworks films including Kung Fu Panda 2 have been disappointments. It will be harder for Katzenberg’s computer animated films to stand out over the next few years; the field is becoming more competitive as other studios ncluding Fox, Universal, and Paramount ramp up their animation production.

No wonder Katzenberg has defended Netflix at a time when many other studios wondered whether the company’s streaming service would cannibalize VOD and DVD sales. The Dreamworks chief told analysts in April that “it’s good news” to have an additional content buyer who could “reaffirm the value” of its films.

Netflix has a strong incentive to return the love. It also would like to change the storyline after recently angering consumers with a 60% price hike in its combined streaming and DVD rental  package.  The Dreamworks fare will help separate Netflix from the online streaming pack which is growing more competitive. Hulu could become a potent rival; its owners – Disney, News Corp, and NBCUniversal, are said to be ready to offer exclusive access to many of their shows to sweeten an auction for the online service. Many believe that Apple, Google, and Amazon are interested in buying Hulu. At the same time, Google is talking to studios about contributing original shows to new channels on YouTube. And Amazon signaled last week that it intends to be a serious player in the business after it signed a deal with CBS last week for access to about 2,000 episodes of old TV series including Star Trek, Frasier and Cheers.

This article was printed from https://deadline.com/2011/07/dreamworks-animation-nears-exclusive-online-streaming-deal-with-netflix-149681/