Netflix signs unprecedented movie deal with Disney

The deal will let Netflix subscribers stream films from Walt Disney Animation Studios, Pixar Animation, Marvel and Disneynature. Starting in 2016, that is. You knew there was a catch.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
3 min read
Greg Sandoval/CNET

First the good news: Disney agreed to give Netflix exclusive U.S. access to some of its top movies.

Now, the bad news: The deal doesn't kick in until 2016.

The companies announced today that Netflix will become the exclusive U.S. subscription television service for first-run, live-action and animated feature films from the Walt Disney Studios. Netflix will receive access to the movies after they're made available for sale and rental.

Sure, the delay is a drag. But this is still a groundbreaking deal for Netflix and the entertainment industry. In the past, Netflix has typically obtained content from the six major Hollywood studios through intermediaries such as pay TV services. Netflix once had access to movies from Disney through a licensing agreement with Starz, but that deal expired earlier this year.

Since at least early 2011, Netflix has struggled to obtain movies from most of the largest Hollywood studios, and customers were irked. This agreement now promises to make Netflix's subscribers happier --  in 2016, at least -- while also putting it on the same footing with some of its competitors in cable, such as HBO, Verizon and Time Warner Cable. What we don't know is how much Netflix had to shell out for this. We can safely say that it was a lot of money.

Some more good news for Netflix: Managers cut a separate multi-year deal with Disney to bring some older catalog titles to Netflix streaming immediately. Some of the titles include movie classics such as "Dumbo," "Pocahontas" and "Alice in Wonderland."

Read an FAQ about the Netflix-Disney deal here.

The news had to trigger a collective gasp from Netflix shorts. In afternoon trading, the company's shares were up 15 percent to $87.60.

The Disney partnership is the best news Netflix has reported in more than 18 months. Back in the summer of 2011, CEO Reed Hastings triggered a year-long slide in the company's stock by fumbling a price hike and attempt to split off the DVD business.

Ted Sarandos, Netflix's chief content officer. Netflix

What's so surprising about this deal is that some of my studio sources were predicting that there was no way the company could afford a deal like this. Yet here it is.

Let's tick off just some of the ways this helps Netflix. It hands instant credibility to Netflix's claims that the company is a competitor to the bigger cable players. Users of Netflix's Internet streaming service can now expect to find more of the hottest movies from the top studios on the streaming service for the rock bottom price of $8 per month. Netflix also distances itself from some of its online competitors, such as Amazon and Apple, who can't offer the same selection for anywhere near the price.

As a side note, Ted Sarandos' stock at Netflix has likely shot up -- if it could go any higher. Sarandos is the company's content-acquisition chief and the man in charge of forging the studio relationships. The Disney agreement is likely another win for him. My sources say Hastings is a big fan of Sarandos, and records show the CEO has compensated his top lieutenant well over the past few years.

So, Netflix just threw down. Now let's see how HBO, Amazon and Verizon respond.

Update 3:20 p.m. PT: The Los Angeles Times is reporting that the deal with Disney is for three years and that Starz previously owned the Internet rights to Disney's fare.