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Netflix Falls as Warner Bros. Offers Facebook Movies

Netflix Inc. (NFLX), the mail-order and online movie-rental service, dropped 5.8 percent in Nasdaq trading after Warner Bros. said it will offer films for purchase or rental through Facebook Inc.

Netflix fell $11.95 to $195.45 at 4 p.m. New York time. Before today, the stock had gained 11 percent this year and more than tripled in 2010. Time Warner Inc. (TWX), Warner Bros.’ parent, lost 35 cents to $36.43 on the New York Stock Exchange.

Time Warner has said Netflix’s $7.99-a-month streaming service devalues films and TV shows. The deal announced today lets the Burbank, California-based studio reach consumers through Facebook’s more than 500 million active users. Users can click a “rent” icon and pay the equivalent of $3 with Facebook Credits. Facebook gets a slice of sales when credits are used.

“The $3 rental appears to preserve the value of content in studios’ eyes,” Youssef H. Squali, a Jefferies & Co. analyst who has a “hold” rating on Netflix, wrote in a research note. Other studios may follow, given Facebook’s larger platform and the potential to make money off a-la-carte rentals, he said.

The Warner Bros. service isn’t an immediate threat to Netflix because it offers only pay-per-view, isn’t available at a centralized storefront and can’t easily be viewed on larger- screen televisions, James Mitchell, an analyst with Goldman, Sachs & Co., said in his research note today.

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Steve Swasey, a spokesman for Los Gatos, California-based Netflix, declined to comment on today’s announcement.

Under the arrangement, selected movies will be available on each film’s official Facebook page, starting today with “The Dark Knight,” Burbank, California-based Warner Bros. said in a statement. The Facebook test joins Amazon.com Inc., which introduced a movie download service in February through its Prime business, Comcast Corp.’s TV Everywhere initiative and Time Warner’s HBO Go.

“Facebook has become a daily destination for hundreds of millions of people,” Thomas Gewecke, president of Warner Bros. Digital Distribution, said in the statement. “Making our films available through Facebook is a natural extension of our digital distribution efforts.”

Renting a movie through Facebook costs 30 Facebook Credits, or $3. Viewers have 48 hours to watch the films.

Netflix ships DVDs to subscribers by mail and streams older titles from Hollywood studios. It has agreements to stream titles from the premium cable channels Starz and Epix, and struck a deal in July with Relativity Media LLC for exclusive streaming rights to first-run movies, including “The Fighter.” Its subscribers topped 20 million at year end.

Warner’s arrangement with Facebook extends to all devices that offer the social network, including Apple Inc. (AAPL) products.

With Facebook, Warner also gains global distribution of its titles, including China, Russia and Portugal, Laura Aguilera, an analyst for IHS Screen Digest, said in a note today.

Netflix offers its streaming service in the U.S. and Canada. The company is looking to expand internationally this year, Chief Executive Officer Reed Hastings said in December.

To contact the reporters on this story: Clifford Edwards in San Francisco at cedwards28@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net Alex Sherman in New York at Asherman@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Thomas Giles at tgiles5@bloomberg.net

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