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.
