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Netflix, Relativity Media Ink Landmark Deal

6 Jul, 2010 By: Erik Gruenwedel

Netflix July 6 said it signed a distribution deal with Relativity Media enabling the online DVD rental pioneer for the first time to stream major theatrical movies ahead of the pay-TV channels such as Starz, HBO and Showtime.

More than 50 Relativity films have become top box office releases in recent years, including 3:10 to Yuma, Smokin' Aces, Catch and Release, Public Enemies, Zombieland, Paul Blart: Mall Cop, Fast & Furious, The House Bunny, The Pursuit of Happyness and Talladega Nights: The Ballad of Ricky Bobby. Current Relativity theatrical releases include Robin Hood, Green Zone, The Wolfman, Get Him to the Greek and Grown Ups

Relativity produces and/or finances from 20 to 30 movies a year -- some through its Rogue Pictures unit -- and has more than 10 films slated to be released over the next 12 months. The deal with Netflix does not involve titles Relativity co-produces with other studios, including Universal Pictures and Sony Pictures, which have their own home entertainment distribution agreements and strategies.

Studio deals with premium cable channels have traditionally pushed Los Gatos, Calif.-based subscription service Netflix near the back of the distribution food chain, a reality CEO Reed Hastings has lamented frequently in interviews and financial calls. Studios typically release movies sequentually first to higher-margin DVD/Blu-ray Disc sellthrough, rental, transactional video-on-demand (VOD) and pay-TV, among other channels. 

Under the new agreement, an increasing number of major theatrical releases will become available to be streamed from Netflix months – and not years – after their release on DVD. Netflix, which offers streaming as a value-add to subscribers, has attributed the format to generating millions of new members in recent years.

Among the first films covered in the deal are The Fighter, starring Christian Bale, Mark Wahlberg and Amy Adams; and Skyline, released by Rogue Pictures and Universal Studios. Both films are scheduled for theatrical release later this year and to be available at Netflix in early 2011. Also on the slate are Nicolas Cage action/thrillers Season of the Witch and Movie 43.

“Historically, the rights to distribute these films are pre-sold to pay TV for as long as nine years after their theatrical release,” said Ted Sarandos, chief content officer for Netflix. “Through our partnership with Relativity, these films will start to become available to our members just months after their DVD release.”

Relativity CEO Ryan Kavanaugh said the deal reflects evolving distribution windows, consumer demands and introduces new ways to monetize film content. 

“This clearly is a natural step in the evolution of the movie business and opens up a whole new world of revenue and marketing opportunities,” Kavanaugh said. “Netflix has certainly made its mark, with a service that reaches over 13 million people. We have a shared vision, and this deal marks a significant change in our industry.”

Ralph Schackart, digital media analsyt with William Blair & Co. in Chicago, said the impact of the deal revolved more around changing attitudes among content producers than Relativity itself, which Schackart characterized as a "relatively small" studio.

"We believe more deals of this nature, or deals like the Starz [agreement] — wherein Netflix sublicenses streaming rights — are likely to occur moving forward as Netflix continues to enahnce its streaming service offering," Schackart wrote in a note.

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