Netflix teams with Dreamworks in big bet on content
The streaming video company has raised the stakes in its battle against cable and online rivals like Amazon.
Under terms of the multiyear deal, DreamWorks will supply 300 hours of original family-friendly programming to the streaming-video service, The New York Times says. This deal also includes content derived from classic DreamWorks films such as "Shrek," "Kung Fu Panda" and "The Croods" as well as characters from new films. In addition, DreamWorks will create programs from franchises it acquired from Classic Media featuring characters such as Casper the Friendly Ghost, Mr. Magoo and Lassie. Earlier this year, DreamWorks and Netflix joined forces to develop a series based on the studio's "Turbo" film.
Wall Street views this as a positive for both companies. Shares of DreamWorks rose Monday morning $1.78, or 7.8%, to $24.59. Netflix jumped $10.49, or 4.9%, to $224.48.
Terms of the deal weren't released, but it's safe to assume that it's not going to be cheap for Netflix especially because rivals such as Amazon.com (AMZN) and Hulu are also signing deals with Hollywood. Indeed, Amazon joined forces with Viacom (VIA) after the producer of "Dora the Explorer" and "SpongeBob SquarePants" let its deal with Netflix lapse last month.
Netflix also reportedly agreed to pay as much as $300 million to Walt Disney (DIS) for the exclusive right to offer first-run movies from the media giant's film division. And Netflix inked a multiyear licensing agreement with Time Warner (TWX). During the last quarter, Netflix's revenue grew at a faster rate than its content costs. Whether it can keep that trend going is tough to say.
The potential for growth, however, is huge. Market researcher Convergence Consulting Group estimates that the number of so-called cord-cutters, people who quit pay-TV services, will reach 4.7 million this year, surpassing the 3.74 million who said goodbye to cable and satellite companies between 2008 and 2012. Bloomberg News notes that the quitters represented 1.1% of pay-TV accounts last year. That's a lot of potential viewers for Netflix's growing library of original fare.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
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