Streaming and mail-in rental company Netflix Inc has reached an exclusive deal for online rights that allows its members to watch new films from the three studios that own the Epix pay TV channel.
The financial terms of the deal -- Netflix's latest move to shake up the pay TV world -- were not disclosed, but a source familiar with the arrangement said it runs for five years and is worth close to $1 billion.
The deal makes Netflix the exclusive Web-only distributor of films from Paramount, Metro-Goldwyn-Mayer Studios and Lions Gate Entertainment Corp, which have libraries that include movies such as Iron Man to Saw.
The films will be available 90 days after their premium pay TV and on-demand debuts.
When Netflix first launched its streaming Watch Instantly service in 2007, the biggest complaint from consumers and analysts was that it only offered older titles because it could not obtain streaming rights to more compelling, newer titles.
Netflix has since aggressively sought deals to make up the deficit such as a content agreement with Starz to offer the cable channel's content online and more recently with independent film company Relativity Media.
We now have streaming rights to 46 percent of the 2010 box office available to Watch Instantly compared with 45 percent for HBO, said Netflix spokesman Steve Swasey, a spokesman for Netflix.
While analysts said the agreement makes Netflix a bigger competitor for HBO, both Netflix and HBO maintained they viewed each other as complementary services.
We'd rather work with HBO just like we're working with Starz and EPIX and we'd like to collaborate with HBO, Swasey said.
HBO spokesperson Jeff Cusson agreed, saying: Our research has shown it's a complementary service.
Tony Wible, an analyst with Janney Capital Markets, said the deal was a blow to traditional media and added competitive pressure for cable operators and HBO. But he noted that, although it was a long-term positive for Netflix, it could create near term earnings pressure due to its cost.
Netflix shares closed up about 6.9 percent at $125.01 on the NASDAQ.
Epix is owned by Viacom Inc and its Paramount Pictures unit, Lions Gate and MGM.
We all recognize we need a digital strategy through multifaceted platforms and technology. We recognized that this was the case and so we've open the aperture and done this deal with Netflix to exploit the content, said EPIX CEO Mark Greenberg.
J.P. Morgan analyst Imran Khan wrote in a note the deal is a positive for Netflix because the increased availability of streaming content will help prevent subscriber turnover.
Lions Gate said during an earnings call on Tuesday the agreement with Netflix makes Epix immediately profitable.
Lions Gate executives said the 90 day window in the Netflix agreement was set to protect its cable partners.
Epix is available in over 30 million homes through carriage agreements with Verizon Communications Inc FiOS, Dish Network Corp, Cox Communications and Mediacom Communications Corp, among others.
(Reporting by Jennifer Saba and Yinka Adegoke; editing by Derek Caney, Dave Zimmerman editing by Andre Grenon)