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Netflix confirms purchase of Sony animated film rights

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Netflix (NFLX) has agreed to buy the earliest home-video rights to Sony (Tokyo Stock Exchange: 6758.T-JP)'s animated films, transferring ownership from pay-television network Starz (STRZA).

"Netflix and Sony Pictures Television have reached a multi-year agreement to bring Sony Pictures Animation feature films in the first pay TV window to Netflix members in the U.S., beginning with the hit movies "Cloudy with a Chance of Meatballs 2" and "The Smurfs 2" in 2014," the companies said in a joint statement Tuesday. Financial terms weren't disclosed.

The deal effectively carves out the animated features from the Sony films that currently air on Starz shortly after they appear in theaters. Starz will retain the live-action titles under its current deal, which applies to movies that appear in theaters through 2021.

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Netflix's deal is the latest in a series of high-profile content acquisitions the video streaming company has made to attract new subscribers. In late 2012, Netflix purchased the exclusive right to show Walt Disney Co. movies beginning in 2016. Those rights currently belong to Starz, which will continue to air Disney movies that have appeared in theaters through the end of 2015. Netflix also has a deal with DreamWorks Animation (DWA).

The Sony animation deal, which includes one or two films per year, adds to Netflix's swelling content costs. The company has $7.1 billion in streaming content obligations but generates almost no free cash flow.

Amazon has also piled cash into streaming content that's available to subscribers to its $99-a-year Prime service. In April, the company said it would offer some of HBO's originals such as "The Wire" and "The Sopranos" three years after their original air dates. Michael Nathanson, an analyst with MoffettNathanson estimated Amazon is paying up to $300 million for that content over three years.

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Earlier Tuesday, Janney Montgomery Scott analyst Tony Wible pointed out that "Cloudy with a Chance of Meatballs 2" had appeared on Netflix, suggesting the video-streaming company had picked up the rights from Starz.

For Starz, the loss of Sony's animated films appears consistent with the pay-TV company's strategy of focusing on adult-oriented content. As with Time Warner's HBO and CBS's Showtime, Starz airs content that isn't generally meant for children.

The deal also may free up cash that Starz can direct toward more original programming. Starz has been seen as something of an underdog because it was late to the game of developing original series that have distinguished HBO and Showtime. Starz has six new series launching in 2014 including "Black Sails" and "Survivors Remorse." Starz is also airing a second season of another original, "Da Vinci's Demons."

Shares of Starz have doubled since January 2013 when the company was spun out of John Malone's Liberty Media (LMCA). Investors have been drawn to the company's consistent cash flow that comes from deals with cable and satellite companies.