Netflix Inks a Streaming Deal With Dreamworks Animation

Jeffrey Katzenberg, head of Dreamworks Animation, is known as a Hollywood visionary - but his reputation has been tarnished by the underperformance of his latest 3D title (specifically, more customers recently chose to watch his studio's Kung Fu Panda 2 in the cheaper 2D version - rather than the 3D version that Katzenberg spent so much money developing and promoting). Now it seems that Katzenberg may be betting that the future for premium video content is not in 3D or even on traditional pay TV channels - but streaming online.

According to a Sept. 25th, 2011 NY Times article Katzenberg's animation studio has signed a deal with Netflix to stream its library of content - including future installments of the Shrek and Madagascar series - exclusively to Netflix subscribers.

Apparently this is the first time a major Hollywood source of feature length films has chosen Web streaming over pay television. Netflix has been the leader in delivering online feature length films as consumers shift to streaming content on computers, tablets and Internet-connected televisions. But the prices for streaming rights have been going up. In the past, HBO has paid licensing fees of about $20 million per picture for the right to air the Dreamworks films just a few months after they were available on DVD. The new Dreamworks Animation deal with Netflix is said to be worth around $30 million per picture to DreamWorks over an unspecified period of years. (Compare the $30 million per picture number, with the reported $30 million that Netflix paid to Starz back in 2008 for two years of streaming rights to over 2,000 titles including hits from Walt Disney Studios and Sony Pictures like Spider-Man 3, Ratatouille, Pirates of the Caribbean: At World's End, Superbad, and No Country for Old Men.)

Some skeptics have suggested that the timing of the Dreamworks/Netflix announcement is suspicious. The Dreamworks films won't be showing up on Netflix until 2013. But Netflix needed some positive news immediately to counteract a stock slide amid the ongoing spin-off of their DVD-by-mail business. Guy Sandoval writing in CNet has questioned whether Netflix is overpaying for the Dreamworks Animation franchises. Sandoval observes that HBO owned the rights that are the subject of this deal until 2014. If the rights that are going to Netflix are really so valuable, why did HBO let Dreamworks Animation out of their contract early? Is Netflix overpaying - or will this deal one day soon seem like another master stroke for Netflix (like the Starz deal that first catapulted Netflix into the streaming business back in October 2008)?

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