Netflix Inc. reached a deal that gives customers of the movie-rental service online access to films from pay-television channel Epix.
The multi-year agreement starts Sept. 1 and includes films from Epix’s owners, Viacom Inc.’s Paramount Pictures, Lions Gate Entertainment Corp. and Metro-Goldwyn-Mayer Inc., the companies said today in a statement. Netflix will get older titles, along with newer releases 90 days after their Epix debut.
The agreement expands Netflix’s online offering, adding to content that includes older features and newer films from Relativity Media LLC and Liberty Media Corp.’s Starz. Netflix has said it will spend more on exclusive content to build the online service. The accord makes Epix profitable immediately, Lions Gate Chief Executive Officer Jon Feltheimer said.
“The original business plan for Epix always called for a broadband offering,” Feltheimer said today on an earnings conference call. The service will “create a new broadband outlet for our film library.”
Epix was created in 2008 by Viacom, Lions Gate and MGM after the studios didn’t renew agreements with CBS Corp.’s Showtime. It went on the air in October 2009 with Marvel Entertainment’s “Iron Man.”
The channel’s film slate includes Marvel films until 2012, “Star Trek” and “Mission Impossible,” said Tony Wible, an analyst with Janney Montgomery Scott in Philadelphia. Catalog titles include the “Saw” and James Bond franchises, he said.
The deal will pay Epix about $900 million in licensing fees over five years and will add about 75 cents to Viacom’s earnings over the life of the contract, Anthony DiClemente, an analyst with Barclays Capital in New York, said in a research note.
Epix, which has struggled to gain distribution on cable systems, streams films to online subscribers the same day they are available on pay TV.
In the quarter ended June 30, Epix lost $38.2 million, according to a quarterly filing yesterday by Vancouver-based Lions Gate, which owns 31 percent of the service. Viacom, based in New York, owns about 50 percent, according to an annual report to regulators filed on Feb. 11.
Netflix, which began by sending DVDs through the mail, has been building out its selection of movies that members can watch instantly over the Internet. Of its 15 million subscribers, 61 percent used the online viewing service in the latest quarter, through their televisions, PCs or devices like Apple Inc.’s iPad and Microsoft Corp.’s Xbox 360.
The service competes for content with pay-TV channels like HBO and Showtime, which lock up exclusive rights to films for as long as nine years. The deal with Netflix will prevent Epix from selling to other online subscription outlets such as Hulu.com, Netflix spokesman Steve Swasey said.
HBO, the largest premium cable channel, is addressing the threat posed by Netflix with superior movies and original programs, Jeff Bewkes, CEO of HBO parent Time Warner Inc., said on an Aug. 4 conference call.
“Everywhere Netflix has subs, HBO out-indexes in terms of its penetration, retention and performance,” Bewkes said.
Netflix, based in Los Gatos, California, rose $8.11, or 6.9 percent, to $125.01 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have more than doubled this year.
Viacom, controlled by Chairman Sumner Redstone, gained 29 cents to $33.96 in New York Stock Exchange composite trading. The Class B shares have gained 14 percent this year. Lions Gate added 2 cents to $6.60 and has risen 14 percent in 2010.
Closely held Metro-Goldwyn-Mayer, based in Los Angeles, is in talks with creditors and potential investors after falling behind on $3.7 billion of debt.
The sum commanded by Epix bodes well for Starz, which carries Walt Disney Co. and Sony Corp. movies and a deal to supply Netflix that expires in 2011, said Richard Greenfield, an analyst with BTIG LLC in New York.
Netflix is paying the equivalent of $1 per subscriber to Epix and will have to greatly increase the $30 million Greenfield estimates the movie service now pays Starz to continue getting content, he said.