Netflix-DreamWorks deal is more spin than win

A lot has been made about Netflix's licensing deal with DreamWorks, but films from the animation studio won't be distributed over Netflix's streaming service until 2013.

Is Netflix desperate to generate positive news?

DreamWorks Animation is well respected but it ain't no Pixar. One of DreamWorks's duds at the box office was "Sinbad: Legend of the Seven Seas." DreamWorks

Sure seems that way. Someone gave The New York Times a heads up on a licensing deal that Netflix signed with DreamWorks Animation, the home of such films as "Shrek" and "How to Train Your Dragon," and the paper wrote a breathless story about the agreement.

But the details of the pact make it clear the partnership doesn't warrant the Times' goose-pimply reaction.

The paper made much of how DreamWorks is walking away from a licensing deal with HBO, the dominant pay TV service. This is supposed to be the first time a major Hollywood film company has chosen a Web streaming service over a pay-TV partner. That may be, but HBO doesn't appear to have done much to hang on to DreamWorks.

HBO even let DreamWorks out of its contract a year early so it could sign with Netflix, according to reports and a source with knowledge of the negotiations. Down deep in the Times story is the acknowledgement that HBO "will most likely not miss (DreamWorks') movies much. HBO's studio partners are increasingly making animated films and HBO recently brought in Summit Entertainment, the studio behind the "Twilight" films, as a new partner."

This brings us to the part of the agreement that really makes the Times' story so puzzling. Tucked down into the piece is this nugget: Netflix won't start distributing DreamsWorks titles until 2013. That's more than a year away, and even then it's unclear how many films and TV shows Netflix will receive. I think it's fair to say that Netflix is in trouble with subscribers, and managers need to bolster their streaming library in a significant way sooner rather than later.

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The number of complaints about the lack of quality movies available for streaming seems only to be growing. Netflix has already acknowledged that managers expect the stunning subscriber growth the company has seen over the past two years to stall in the third quarter. The company badly misjudged how customers would react to a price hike announced in July. Netflix had to lower by 1 million previous estimates about the number of subscribers the company would report in the third quarter--and that was before managers shocked and angered customers again by announcing they would no longer distribute DVDs.

Last week, Netflix said it had decided to split into two services. CEO Reed Hastings told customers the company had created a separate service called Qwikster where customers could go if they wanted to rent discs. Qwikster and Netflix's Web sites would not be integrated. He said that from now on, Netflix would focus only on streaming-video.

In response, subscribers and analysts heaped criticism on Hastings and Netflix, calling them greedy and even "dumb." Many customers have cancelled. On Wall Street, Netflix investors are in full retreat. It was last July when Netflix's stock skyrocketed past $304. Since then, shares have spiraled downward, and on Friday they closed trading at $129.36, a 57 percent drop in value.

So, Netflix needs to stem the bleeding. This DreamWorks deal is unlikely to accomplish that.

Skeptics will be sure to note that up until recently, Netflix didn't appear all that excited about DreamWorks either. Bloomberg reported in July that Netflix and DreamWorks were very close to an agreement, and then we didn't hear anything again until now--a few weeks after talks broke down between Netflix and Starz, the pay-TV service that possesses the Web distribution rights to content from Disney and Sony Pictures.

The Starz deal involved many more films, and from two major Hollywood studios. The way it looks is that Netflix was waiting to see what happened with Starz before signing with DreamWorks. Netflix now appears to be trying to spin the DreamWorks deal into a worthy replacement for Starz.

But it's going to take much more than a few cartoons to satisfy streaming customers.

 

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