Netflix and Disney: This Is Only the Beginning

Netflix (NASDAQ: NFLX  ) and Disney (NYSE: DIS  ) are getting more exclusive. The two companies just announced a licensing deal that makes Netflix the only home for Lucasfilm's animated TV series Star Wars: The Clone Wars. But the pact isn't limited to just the five seasons that already aired on television: a sixth chapter will start streaming in March -- only on Netflix.

An animated Yoda appears on Netflix starting March 7. Image source: Netflix.

Sure, the final season of a canceled TV show is a modest commitment for a powerhouse like Disney. But it's really just the start of a huge amount of fresh content that the entertainment giant will be broadcasting through Netflix's service over the coming years.

Taking advantage of an "incredible platform"
Next in line will be a number of new Marvel properties. Starting in 2015, Netflix will be the exclusive home of serialized dramas based on some underexposed characters from the Marvel universe. The shows are set to come out over a span of four years, beginning with a series focused on Daredevil, and followed by Jessica Jones, Iron Fist, and then Luke Cage.

In announcing the deal, a Marvel executive explained why the two companies were linking up so closely, saying, "Netflix offers an incredible platform for the kind of rich storytelling that is Marvel's specialty."

The deal is a win for Netflix, too, as it helps the company pioneer new entertainment models that are right in line with its recent binge-viewing push. As Chief Content Officer Ted Sarandos said at the time, "We're thrilled to be working with Disney and Marvel to take our brand of television to new levels."

Pushing the relationship to the "next level"
But the deepening Netflix-Disney relationship isn't limited to just TV. Beginning in 2016, Netflix will be the exclusive streamer for first-run feature films across Disney's properties of Pixar, Marvel, Lucasfilm, and Disney Animation studios.

This licensing agreement goes beyond "second window" releases that put hits like the Marvel's Iron Man and The Avengers onto Netflix's service almost a year after hitting theaters. Instead, it is an exclusive, "first window" deal, meaning that the new movies will arrive on the Netflix streaming service -- and only that service -- just a few months after their theater runs end.

Netflix CEO Reed Hastings boasted about the agreement in a conference call with analysts, stressing how important it was. "The Disney deal is particularly significant because it is our first 'Pay 1' deal with a major studio in the U.S. and because of the strength of the Disney, Pixar, Marvel and Lucasfilm titles," Hastings said.

Disney, which is surely getting paid well for this batch of content, sounded just as happy with the deal. An executive with the company said, "we are thrilled to take our highly valued relationship with Netflix to the next level by adding Disney's premier films to their programming line-up."

What's ahead
There's every reason to think that the Netflix and Disney relationship is only getting started. As Netflix approaches 50 million subscribers in more than 40 countries, its content needs are massive. Meanwhile, Disney could use a global outlet for its portfolio of properties that's set to balloon over the next few years with new brands from Lucasfilm, Pixar, and Marvel.

The two companies have already shown that they're willing to make huge bets on each other that should end up advancing both of their ambitions. A short animated Star Wars episode that streams next month will be just the start.

How to profit from the shift
With the huge move toward online streaming, you know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 15, 2014, at 7:18 PM, hectoruno wrote:

    What happened to the Dreamworks deal? Turbo Fast was only 5 episodes and the movie is not streaming yet.

  • Report this Comment On February 15, 2014, at 9:09 PM, jimenzo wrote:

    The Punisher could be purrfect for netflix

  • Report this Comment On February 16, 2014, at 8:06 AM, pauldeba wrote:

    Disney clearly doesn't have sufficient capital to invest or resources to stream on their own. As an extremely limited company, they obviously need Netflix to expose their product and won't do it on their own someday.

    Try streaming Cinderella, Snow White, Pinocchio, Sleeping Beauty, Little mermaid, Monsters, Inc or Beauty and the beast on Netflix. Yep, that's right, Netflix is a dumpster and Disney dumps their garbage there, and all you clowns thinks it means big things for netflix, good grief!

  • Report this Comment On February 16, 2014, at 10:20 AM, TMFSigma wrote:

    @hectoruno - Dreamworks feature films are coming exclusively to Netflix starting with "The Croods," and then "Turbo" beginning sometime this year.

    @pauldeba - Netflix's deal with Disney also included catalog hits like Dumbo, Pocahontas, and Alice and Wonderland, but as I mentioned, the new content will start flooding in beginning next year.




  • Report this Comment On February 16, 2014, at 10:23 AM, TMFSigma wrote:

    @hectoruno - my mistake: The Croods is already streaming on Netflix. I should know since I just watched it last week!


  • Report this Comment On February 17, 2014, at 1:18 PM, legacys7 wrote:

    @pauldeba Get real. Disney has more than enough capital to invest into streaming. Hell, the company owns ABC, Lucas Film etc. We're talking about a multi-billion dollar company here. Not some Oprah wanna be network.

    Imo, I think that it just makes much more business sense to go the Netflix route. Why start a network that could have the potential to fail? There has to be something very unique in for Disney to start a streaming online service that will make them stand out from the existing competition. I don't see anything that does. Netflix is perfect for what they're trying to do.

    Netflix already are having a successful year with their own streaming series. It just makes sense to add to this vs what AMC and others are doing, by going the cable route. which limits their audience. Meaning, in order to watch television premier shows like "Breaking Bad" for example, you have to have cable or a dish. Netflix, all that you need is to have access to the internet. PLUS, with the Marvel deal, it gives them more flexibility to display more of the comic like actions that they can't show to a general audience on both television and in the movies.

  • Report this Comment On February 17, 2014, at 1:56 PM, CalvinballPro wrote:

    Disney made this deal because no other network was going to buy the syndication rights for a show that Disney cancelled before it was fully complete. They needed someone else to help finance the last season, otherwise they had a non-bankable asset collecting dust on the shelf.

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Demitrios Kalogeropoulos

Demitrios covers consumer goods and media companies for, as well as broader moves in the economy.

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