Netflix, Epix, and the End of the Exclusive: Why Reed Hastings’s Competitors Will Get Their Hands on Some of His Biggest Movies

Published on July 25, 2012
by Peter Kafka

Netflix has a lot of TV shows, a lot of old movies and a lot of kids’ stuff on its digital service. New movies? Not so much. Most Hollywood studios keep their recent releases away from Reed Hastings.

One big exception: Netflix does get newish movies from Paramount, Lionsgate and MGM, via Epix, the pay-TV channel Viacom controls. So when you’re cruising the Netflix streaming menu and see titles you recall hitting the theaters in the last couple years, there’s a very good chance they came from Epix.

Right now, for instance, Netflix subscribers can watch “Thor” and the most recent “Transformers” movie, both put out last year via Paramount. Coming up, “Captain America.” Next year, they’ll get “The Hunger Games” and “The Avengers.” All from Epix.

Right now, Netflix is the only online subscription service that offers Epix movies. But that exclusivity goes away at the end of August. Redbox Instant, for instance, will feature Epix movies when it launches later this year. Viacom would love to convince someone like Amazon to carry the movies, too.

So what does that mean for Netflix, which makes a big deal about paying for exclusive content? No big deal, says Hastings. “Epix is not a particularly large source of total viewing,” he told analysts on his earnings call last night. (That call didn’t go too well: Netflix shares are down more than 25 percent today after yesterday’s earnings report.)

But in Hastings’s most recent letter to investors, he’s more enthusiastic about Epix. “Our current feature film offering is better than ever,” he told shareholders, citing “Thor” and “Transformers,” along with non-Epix movies. And my Netflix home screen designates the new “Transformers” as “most popular,” so I guess someone’s watching it.

We’ve seen Hastings try to straddle the fence like this in the past, when Netflix lost its access to the Starz pay channel, and with it, the ability to show movies from Sony and Disney. Netflix said it was willing to pay big money to keep Starz. But when it didn’t get the deal, it told investors that few people watched the movies anyway.

My gut: It really does work both ways for Netflix. Hastings’s users may not spend a ton of time with “Thor” and his super-friends. But I bet their presence on the Netflix menu helps reassure users — See? We really do have big Hollywood movies! — and that’s probably worth quite a bit to them.

If so, Netflix users will be reassured for a while, whether Hastings likes it or not. Netflix has a five-year deal with Viacom that runs through the middle of 2015.

That agreement has to be extended every year, but it’s not a negotiation: People familiar with the deal tell me it has a “put” mechanism, which means it’s up to Viacom to decide whether Netflix gets Epix, at a prearranged price. My hunch is that they will keep cashing Hastings’s checks.

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