Netflix outbids Starz for rights to Disney movies

By Michael Liedtke

Associated Press

Published: Tuesday, Dec. 4 2012 12:00 a.m. MST

Starz retains the rights to all Disney movies released in theaters through 2015, with Netflix picking them up on films released in 2016 and beyond. Disney's direct-to-video movies will come to Netflix next year, while classic films such as "Dumbo" and "Alice in Wonderland" will be released to Netflix immediately.

Disney's stable includes Pixar Animation and Marvel and soon will boast Lucasfilm's "Star Wars" franchise, too. Its $4.05 billion acquisition of Lucasfilm will spawn at least three additional installments of the "Star Wars" saga. However, the next installment won't likely be included in Netflix's package because Disney intends to release the next "Star Wars' movie in theaters in 2015, giving Starz the rights. Netflix will be in line for subsequent "Star Wars" chapters.

Wedbush Securities Michael Pachter said he doubts the Disney films will attract enough subscribers to offset the expense.

"These costs are going to sink Netflix," he said.

Pachter has been urging investors to sell their Netflix stock because he believes the company will either lose money or post puny profits for the years to come.

Netflix's rising costs for Internet video rights have emerged as a major source of concern as the company's earnings have dwindled during the past year. The company, which is based in Los Gatos, Calif., already has warned that it may record a loss for the last three months of 2012, which would be its second quarterly loss of the year. Depending on the size of the potential fourth-quarter setback, Netflix could finish this year with its first annual loss in a decade.

Even before signing the Disney deal, Netflix owed $5 billion in Internet video licensing fees during the next five years, including $4.5 billion due before the end of 2015. Netflix's annual revenue this year is expected to total about $3.6 billion.

Wible, the Janney analyst, said Netflix may have wanted to strike a deal with Disney several years before the movies can be shown on its service to bolster investors' confidence in the company. That, he said, could give Netflix a better chance to sell bonds or stock to raise more money to pay Disney and other studios for Internet video rights.

"The biggest uncertainty is whether Netflix will use this as an excuse to raise capital," Wible said.

Starz played down the loss of the Disney rights. In a statement, Starz said it would now have more money to invest in developing original TV series. Netflix also has been financing exclusive episodic programming and had similar played down its loss of Starz when that deal expired in February.

After Disney defects to Netflix, Starz will still hold the first-run rights to films released by Sony's stable of movie studios That deal applies theatrical releases through 2016 from Columbia, TriStar, Screen Gems and several other Sony-owned studio.

Liberty Media plans to spin off Starz into a separate, publicly traded company early next year.

AP Business Writer Ryan Nakashima in Los Angeles contributed to this story.

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