Netflix has announced a landmark licensing agreement that will give it exclusive subscription rights in the United States for first-run movies from The Walt Disney Company from 2016. It might come to be seen as the moment that over the top distribution became a real challenger for a market previously dominated by pay-television operators. What are the implications for Apple, which has had a long-term relationship with Disney?
In addition to a multi-year catalogue deal that offers current Netflix members in the United States access to archive Disney classics like Dumbo, plus a deal on direct-to-video releases from 2013, new Disney and Pixar movies will be available from 2016 to watch in the pay-television window on multiple platforms, including television, tablets, computers and mobile phones.
The streaming video service will be able to offer Disney movies online exclusively during the period normally reserved for pay-television channels. That typically begins around six months after they leave theatres and generally extends for a further eighteen months.
It puts Netflix in more direct competition with services such as HBO, Showtime and Starz. The latter did not renew its output deal with Disney, claiming it would instead increase its investment in original production.
It is the first time that a major studio has sold first-run rights to Netflix rather than a pay-television network. The terms of the deal were not disclosed, although the cost is likely to be considerable. The cost of a competitor beating Netflix to it could have been even more significant.
The question is now whether other major studios will follow suit and do exclusive deals with online services rather than traditional pay-television providers.
Netflix will need to support its investment by growing its subscriber revenues. It currently has around 20 million subscribers in the United States.
Ted Sarandos, the chief content officer at Netflix described it as “a bold leap forward for internet television”. At the UBC Media Conference in New York, he said it was a “game changer”.
Available on over 800 different devices, Netflix can reach a broader audience than traditional pay-television networks.
Nevertheless, the deal with Netflix seems a surprising move for Disney, which among other things owns and operates the ABC television network.
Disney has previously long been a close partner with Apple. When Disney acquired Pixar in 2006, the late Steve Jobs became the largest individual shareholder in The Walt Disney Company and sat on the board. Following the death of Steve Jobs, the chairman of Disney, Bob Iger, also joined the board of Apple.
The Disney deal would appear to frustrate the ambitions of Apple in the television business. Then again, there has been talk of a company like Apple buying Netflix, although that might be wishful thinking by some.
Tim Cook, the chief executive of Apple has confirmed that television is an area of “intense interest” for the company — more than just a “hobby” then.
He told the NBC television programme Rock Center: “When I go into my living room and turn on the TV, I feel like I have gone backwards in time by 20 to 30 years… It’s an area of intense interest. I can’t say more than that.”
Netflix subscribers will not see new output from Disney, other than straight to video releases, until 2016, which seems a long way off. A lot could happen in online video before then — and probably will.