BURBANK, Calif. (AP) -- The Walt Disney Co. broke the pay-TV mold late last year when it announced it is selling the rights to show its recent theatrical releases to Netflix Inc. beginning in 2016. The decision represented a major endorsement of Netflix's Internet video service, which is wresting the Disney rights away from the Starz cable channel.
Although financial terms haven't been disclosed, analysts believe Netflix will be paying Disney at least $350 million annually once the deal kicks in.
Disney's movies will remain on Starz until late 2016, but analysts are already starting to mull the possible consequences of the change. One concern is whether the switch will cause more young viewers to spend more time on Netflix, already a popular outlet for children's programming, instead of Disney's own cable channel.
Disney CEO Robert Iger discussed the rationale for switching to Netflix in response to a question posed during a Tuesday conference call held to discuss the company's fiscal first-quarter earnings.
QUESTION: Just wondering if you can talk a little bit about the pay-TV output deal that Disney signed with Netflix? What got you comfortable with doing that deal from a branding perspective for Disney in light of the potential substitution effect for kids' TV viewing, and of course, in light of the relationships you have with your traditional multi-channel distributors?
ANSWER: First of all, we are impressed with the platform and the user interface. We thought from an environment perspective, it was a perfect place for our product to be distributed. They stepped up and paid the right price which was also extremely important.
We carefully considered the impact of selling to Netflix versus a more traditional pay cable channel. We have been with Starz, as you know, and we will continue with Starz for a few more years. And (we) felt, that given the volume of product that we would flow through the Netflix deal, and given the strength of our channel programming, notably the Disney Channel ... that this was not a step in the direction of encouraging people to not subscribe to multi-channel services.
We thought long and hard about it, talked about it at length and believed in the end that this is a movie play. There are limitations in terms of when the movies are available and how many they are in terms of how many we make and the size of our library and felt that it is a completely different product than Disney Channel product. And given the popularity of the shows that we have, the demand to see those shows relatively quickly remains pretty high and we believe we will be able to maintain that. So you have to subscribe to a multi-channel service to see them.