Netflix's stock on Monday briefly broke the $100 mark for the first time in nine months following a new TV deal with Warner Bros. Television Group. The stock closed up 3.4 percent at $99.20 as analysts also digested a new new movie streaming service from AT&T.
The TV drama slate deal unveiled by Netflix and the Time Warner unit on Monday marks the latest content licensing agreement between the two companies, which remain rivals for movie output and other content deals but have increasingly found ways to work together. And it will bring a few Warner TV shows to Netflix faster than under previous agreements between the parties.
Observers said that it is the latest sign that Warner Bros. has become more open to making content available on Netflix since Time Warner CEO Jeff Bewkes a couple of years ago compared the streaming video service to the Albanian Army. On Monday, Time Warner CFO John Martin had only positive things to say about Netflix and downplayed any notion that the leader in streaming TV shows has had a negative impact on the traditional television business, which he said accounts for 85 percent of Time Warner's profit.
In the fourth quarter, Netflix accounted for about 3 percent of video viewing in the U.S., Martin said at the Citi Global Entertainment, Media and Telecommunications Conference in Las Vegas. "Which, in the grand scheme of things, just isn't that big," he said. Still discussing Netflix and subscription VOD in general, Martin added: "We're estimating that there's about $3 billion more now being generated in the ecosystem by virtue of having a more efficient way to monetize television shows."
Analysts on Monday also were also bullish on Netflix because they said the deal with Warners proves that Netflix is holding up well in the face of competition from the likes of Amazon.com as well as a joint venture between Verizon and Redbox. But analysts also noted that the new arrangement is more an evolution than a revolution, as it focused -- as do so many Netflix deals -- on serialized dramas that entertainment giants have had trouble selling in traditional TV syndication. Bruce Rosenblum, president of Warner Bros. Television Group said as much in announcing the deal. Subscription VOD services like Netflix have become "an important window for our serialized dramas, allowing viewers a chance to discover a series that before might have been intimidating to tune into mid-run," he said.
The Warner deal will give U.S. Netflix members access to complete previous seasons of eight current dramas produced by Warner, including Revolution and supernatural thriller 666 Park Avenue. Netflix will be the exclusive online subscription place for the shows, but Warners said it is keeping the rights to sell the shows into other syndication windows, as well as offer them for electronic sell-through and on a catch-up basis for recently aired episodes of the series. Netflix chief content officer Ted Sarandos called the arrangement "unprecedented" given a delay of only about one year for new seasons of hot shows for Netflix availability. In the past, Netflix got access to older Warner shows, and it often struck deals with a network, such as the CW, rather than the Warner TV studio.
"Netflix’s competitive advantage is that it will bid for syndicated dramas, while most will not because the format isn’t conducive to syndication. Since Netflix is the only bidder, it makes sense that Warner is a seller,"said Wedbush Morgan Securities analyst Michael Pachter. "What’s more interesting is that there is not a single non-serialized show in the mix." Davenport & Co. analyst Mike Morris was bullish on the Warner agreement as well as an HBO film output deal with Universal from late last week add revenue for Time Warner and further bolster its financial position.
"Time Warner announced two agreements since the close of business on Friday highlighting the key role that the company plays in the television and film content, packaging and distribution eco-system," he said. Morri added that the Netflix-Warners deal "appears consistent with the evolving thought process that Netflix is a good vehicle for prior seasons of current programming to help create/maintain interest and Netflix (and/or other subscription video services) is a good vehicle for serialized library content that likely had little and eroding value in a traditional syndication environment."
Shares of Time Warner fell fractionally to $49.12 on Monday. Meanwhile, AT&T's U-Verse pay-TV service on Monday introduced the U-Verse Screen Pack, a $5 per month subscription VOD movie streaming service for its TV subscribers. Observers said it seems designed to address risks of consumers' flight to rely solely on Netflix — similar to Comcast's Streampix service, though it has a fairly limited content library.