If you aren’t familiar with some of the inner workings of the film industry, here’s a basic primer of the current system. After a film is released in theaters, it is then released on DVD/Blu-ray and depending on the studio and the viewing window, to Pay-Per View, Redbox or Video-on-Demand. After the new-release window ends, bigger films go into what is called the first-run window, where they are then available on a premium cable channel like HBO, Showtime, Starz, etc. After this window, films are then dribbled down to basic cable, network television and so on.
Although Netflix’s Watch Instantly library is growing all of the time, one area where it really falls short is in new releases. This is not the case with Netflix’s DVD and Blu-ray rental-by-mail service, however. Netflix has a vast catalog of Watch Instantly films, but most of them are older releases and the most up-to-date content is usually by way of television, which is easier to license for more recent viewing.
The big exception in this area has been with Starz. Netflix was able to procure a deal with Starz to get movies (or Starz original broadcasts) as soon as they come to Starz subscribers. While Starz doesn’t have the first-run deals of the largest premium cablers like HBO, it does have some exclusive deals with Disney/Pixar and with a lot of Sony films.
Because Starz retained ownership of how it licensed its content digitally (that is, over the Internet), the company was then able to license that content to Netflix, giving Netflix access to its first-run content. It was a brilliant run around the system. Unfortunately, it also made the major studios pretty unhappy.
The current Starz deal expires in 2012 and it won’t be the same in the future. Instead, studios are now building more digital licensing agreements into their contracts with the premium cable outlets to avoid a Netflix-Starz scenario from happening again.
The only recourse for Netflix is to make deals directly with the studios, which is exactly what is happening with Relativity Media.