It's been more than two years since Netflix (Nasdaq: NFLX) stopped selling ad space in its signature red DVD mailers. Speaking with fellow Fool Rick Munarriz at the time, CEO Reed Hastings explained that "[i]t was pretty inconsequential and we just decided to use the inventory to promote our new initiatives like our streaming to Xbox and LG and Samsung and Roku."
Well, the times, they are a-changing. Netflix has gone back to promoting stuff you can't get through Netflix anytime soon such as recent DVD or streaming releases, nor can you use the advertised wares to access Netflix services. But that doesn't mean you'll see a line of would-be ad space customers lining up in Los Gatos -- this stuff is still pretty close to Hastings' vest.
Last week's mailers included a full-color ad for Judy Moody and the Not Bummer Summer, which opened nationwide last Friday and won't be coming to a mailbox or Xbox near you anytime soon. Indie minnow Smokewood Entertainment, which produced the movie, does have two earlier releases available in every media format supported by Netflix, but that fact isn't promoted at all. So back-catalog boosting is not in the cards here.
But Judy Moody is distributed by Relativity Media. If that name rings a bell, it's probably because you've been paying attention to the deals Netflix makes. Relativity was the first studio of any size to sign a direct streaming deal with Netflix without relying on middlemen like Epix or Starz (Nasdaq: LSTZA).
And it looks like Netflix defrayed the costs of that deal by throwing in a bit of mailer-based advertising.
Relativity doesn't monopolize this ad space as this week's mailer showed yet another batch of streaming-enabled set-top boxes. Moreover, the value of this add-on will only shrink over time as DVD mailers become a smaller and smaller part of the Netflix equation. In other words, this is probably a one-shot trick.
But it does show that Hastings is willing and able to think up innovative deal structures to take some financial pressure off these content deals. This time it's mailer ad space, next time he might court Viacom (NYSE: VIA) with a dedicated space for Paramount and MTV content on the Netflix site, or woo Walt Disney (NYSE: DIS) with a wheel of cheese.
OK, I kid about the Mouse. I'm sure Hastings has a better handle on his bag of tricks than I do. But the point still stands: Netflix can strike creative deals when it needs to. And make no mistake: Dealing directly with studios is a much better strategy than passing through middlemen -- even if you have to go back on old strategy shifts in order to get it done. You'll see a lot more of those.
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