Warner Bros. (NYSE: WB), 20th Century Fox (NYSE: NWS), Universal Pictures (NYSE: GE) and many other Hollywood movie studios are desperate for Blockbuster to rehabilitate their businesses. The former home video giant represents the big-budget film industry’s last bastion of major rental revenue, a business model that used to see millions of customers paying in excess of $5 to rent the latest DVD release for just two nights. The business model began to break down with the rise Coinstar’s (NASDAQ: CSTR) Redbox automated $1 per night rental kiosks and Netflix’s (NASDAQ: NFLX) by-mail rentals. Now, the end times have come. Blockbuster declared bankruptcy in September and Netflix has, after two years of adjusting its strategy, technology and marketing, changed the home video industry yet again. Now customers don’t rent, they stream. While the old Hollywood guard bemoans Netflix’s business devaluing their product, new film studios are adapting for the film industry’s future.
Netflix announced a new deal with Graham King’s (the producer behind Matin Scorsese films The Departed and The Aviator) new independent film studio FilmDistrict this morning. The new partnership will see first-run films distributed by FilmDistrict go to Netflix’s Internet-based instant streaming service a “few months” after those films are released on DVD. These films would likely have been licensed to premium cable channels like HBO (NYSE: TWX) in the past, but will now come to Netflix’s streaming service where audiences can watch them as many times as they please. The first two FilmDistrict movies to appear on Netflix under the deal will be 2011’s Ryan Gosling vehicle Drive and 2012 sci-fi thriller Lockout.
FilmDistrict is an independent film production, financing, acquisition and distribution company. King opened it for business last September along with partners Tim Headington and Peter Schlessel. They announced at the time that they aim to release between four and eight films theatrically per year, which should translate to Netflix receiving a steady stream of recognizable current films. While Netflix already offers a selection of first-run Hollywood blockbusters through its instant streaming service, it is tied to partnerships with other outlets like premium cable channel Starz (NASDAQ: LSTZA). The new deal with FilmDistrict represents what will likely be the first of many deals with movie studios to bring their content to Netflix’s increasingly popular streaming service.
Last week Netflix said it would start offering streaming-only subscriptions nationwide for $7.99 per month. Yesterday Netflix stock hit an all-time high of $209.11, bucking analyst predictions that Netflix was due for a sharp fall. With the sky the limit for a company defining home movie entertainment, investors should expect more deals like the one between FilmDistrict and Netflix on the horizon.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
