Netflix Gets Quick-Release Video Streams

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Netflix (Nasdaq: NFLX  ) took a lot of flak from analysts when the company started inking deals with Hollywood this spring. New releases from Time Warner (NYSE: TWX  ) now show up in Netflix queues 28 days after the retail DVD release, giving Blockbuster (NYSE: BBI  ) and other rivals a window of Netflix-less rental rights. Now, Netflix is starting to introduce digital video streams of rather fresh cinema fare. The company's strategy is clear: streaming trumps DVD every time.

In what looks like a watershed moment for Netflix as a streaming video provider, Relativity Media just signed a long-term contract that gives Netflix streaming licenses to the studio's major motion pictures. It isn't clear whether the deal covers all of Relativity's future releases or just a handpicked selection; the first batch features Christian Bale vehicle "The Fighter" and Nicholas Cage thriller "Season of the Witch," among others.

Relativity may not be a household name, but the studio has produced 48 hits big enough to break the $100 million benchmark in box office receipts, and the company behind familiar titles like "Zombieland" and "Get Him to the Greek." The studio has a history of shunting movies into the Pay TV window where movie channels such as HBO and Starz ply their trade, but this exclusive deal with Netflix leaves the film channels out in the cold.

It's a shrewd move by Netflix, building upon the existing rebroadcasting agreement with Starz but also presenting fresh films in streaming format much earlier than before. This is a field test with a relatively small studio. If Relativity can report healthy financial results from this move without cutting too deeply into DVD revenues, I fully expect Netflix to go after bigger fish. First the mid-level producers, Lionsgate (NYSE: LGF  ) and maybe DreamWorks Animation (NYSE: DWA  ) . After that, the doors should open at Sony (NYSE: SNE  ) and Walt Disney (NYSE: DIS  ) -- all of the big boys will come running once Netflix proves the economic validity of this newfangled streaming gizmo.

That's how I see the long-term future working out in the movie industry, as our homes become ever more broadband-connected and consumers get used to having Netflix logos on their TV sets and set-top boxes. The DVD had its day but will decline with crushing inevitability; Blu-ray is just a stop-gap measure to hold us over until everybody can stream high-definition movies at the flick of a remote control. And Netflix is positioning itself to be a leader in the brave new world. Digital entertainment is the future.

Does quick-release streaming make up for delayed DVDs? Settle the score in the comments box below.

Fool contributor Anders Bylund owns shares in Netflix and Disney, but he holds no other position in any of the companies discussed here. Walt Disney is a Motley Fool Inside Value recommendation. Walt Disney, DreamWorks Animation SKG, and Netflix are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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  • Report this Comment On July 06, 2010, at 6:16 PM, CPACAPitalist wrote:

    If Netflix can position itself to ink deals with major studios then it will become an entertainment power player. Streaming media will dominate the in-home entertainment market in the next few years. I know many people who get all their entertainment from Hulu, Netflix streaming, and Xbox live streaming/downloadable content. Disks, special players, stacks of cases, etc., these will be antiques in the next 5 years.

  • Report this Comment On July 07, 2010, at 1:42 PM, CMFStan8331 wrote:

    I think there will always be a market of some (significantly reduced) size for physical media - many people just like to own something tangible. But streaming is definitely the wave of the future, and once again we see Netflix looking forward into that future. Netflix is an extremely well-managed company that will continue to capitalize on technology trends to the benefit of itself and its customers.

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