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Disney Revisiting Netflix Agreements

9 Aug, 2011 By: Erik Gruenwedel

CEO Bob Iger said studio would favor pay-TV channels over streaming for premium content while licensing library fare to subscription VOD

Walt Disney Co.’s indifference toward Netflix appears to be changing. In fact, don’t expect to see premium programming appearing on subscription video-on-demand services such as Netflix and Amazon Prime anytime soon.

Speaking to investors Aug. 9 to discuss Disney’s third-quarter results, CEO Bob Iger said the studio is in discussions with Netflix and other SVOD players about licensing largely library catalog compared to new-release movies or current season TV programming.

“Our overall approach of late has been to make deals that increase [incremental] revenue while at the same time protect and respect the multi-channel [cable] or channel distribution value that we see today,” Iger said, adding that some of agreements would include some form of user-authentication now being rolled out on TV Everywhere platforms.

“There is clearly a thirst for filmed entertainment, particularly branded high-quality entertainment, and what we’re seeing, I think stimulated in part by not only higher connectivity speeds but significant development in [tablet computers], we’re looking at platforms that are creating all types of new business opportunities,” Iger said.

Indeed, Iger throughout the years has been largely indifferent toward the rise of Netflix, allowing the studio’s movies to be sub-licensed to the service through its relationship with Starz Entertainment. In 2010, the CEO incurred the puzzlement of some analysts when he shrugged off concerns about then No. 1 box office release, Alice in Wonderland, being given to Netflix at the same time as the title’s packaged media and transactional VOD release.

The CEO said that going forward the studio would shy away from long-term licensing agreements due to rapidly evolving distribution channels and technology.

“We will make access to [newer] programming more difficult or later, except if a customer is authenticated as a [cable or satellite TV] subscriber,” he said. “I think you’ll see over the next few years a lot of deals done that enable this. We now have to hope that not only is the technology improved that enables authentication but that the whole user experience gets better.”

Iger said digital distribution remained an exciting and developing proposition still in its infancy.

“You’re still at the beginning of the beginning on this,” he said.

Meanwhile, lower theatrical results from Cars 2 and Thor compared to Iron Man 2 and Toy Story 3 last year contributed to sluggish filmed entertainment results.

Strong theatrical results from Pirates of the Caribbean: On Stranger Tides was not enough to offset lower box office results from Cars 2 and Thor, which contributed to Walt Disney Studios posting third-quarter (ended July 2) operating income of $49 million — down 60% from operating income of $123 million during the previous-year period.

On Stranger Tides, which has generated $239 million at the box office since its May 20 release, also included its production, amortization, marketing and distribution costs in the quarter — depressing studio earnings.

Studio revenue was flat at $1.62 billion compared to $1.63 billion last year.

Iger said the focus at the studio was on production costs of movies versus internal structuring within the studio operations.

“It is our intention to take a very careful look at what films cost and if we can’t get them to a level that we are comfortable with, we think that we are better off actually reducing the size of our slate than making films that are bigger and increasingly more risky,” he said.

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