Netflix Deal with DreamWorks a Potential Roadmap for Premium Streaming Market

Netflix and DreamWorks Animation are reportedly in negotiations to bring DreamWorks movies to the video streaming service. In and off itself, that is not major news. Netflix makes and breaks content distribution agreements with different partners all the time. Yet, the DreamWorks deal would directly affect the pocketbook of one of Netflix’s major competitors – HBO.

DreamWorks and HBO have a content-distribution agreement that runs through 2014, according to Bloomberg. Yet, the Hollywood Reporter says that HBO is willing to let DreamWorks out of the deal two years early, making the studios’ animated movies available to Netflix in 2013. It would be a bit of a coup for Netflix to be the go-to movie distributor over the likes of HBO and a signal both the mid-term future of content streaming.

Netflix is at the mercy of its content partnerships. As the company grows and disrupts traditional media businesses, licensing agreements are getting steeper and more difficult to negotiate (see: Starz-Sony). Studios and the networks want to be able to extract money from Netflix without putting it out of business, yet keep the company at arm’s length. A world where Netflix dominates online content consumption is not a good thing for the content providers.

That is why Netflix, so far, only gets entire seasons or series of older TV shows, like Scrubs (a recent addition) or Cheers and “new releases” come to the service 28 days after coming out on DVD. In turn, that is why the networks created Hulu Plus, to capitalize on the immediacy of shows and movies rather than Netflix’s backlog of older titles. Yet, when it comes to premium content, HBO has long been the preferred destination for the big movie studios to make money on their “long tail” of content.

The long tail is now shifting to Netflix and it looks like DreamWorks knows it.

The other half of this equation is timing. For all its explosive growth and innovation, the premium-content streaming market is still just learning to stand on its own feet. The networks and studios are still trying to figure out exactly what their product models will look like and how to best optimize revenue streams of their products. That is why you see the UltraViolet initiative, Comcast teaming with Elemental and the potential sale of Hulu. The industry is fumbling about for the right strategy.

Also, as we see with the HBO/DreamWorks deal, there are licensing agreements that are ending, freeing up partnerships with other entities. Even though DreamWorks itself is a blip on Netflix’s radar, it shows us somewhere near 2013 is when the premium streaming market comes into its own.

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