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Sony (SONY) Partners Netflix (NFLX) to Stream Films From 2022

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Zacks Equity Research
·4 min read
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Sony Group Corporation SONY recently inked a multi-year agreement with Netflix, Inc. NFLX to stream Sony Pictures’ top movie releases in the United States post their theatrical runs, beginning 2022. The five-year deal for an undisclosed amount will enable movie buffs to stream their favorite films on the go, and it replaces an output deal the studio had with Lionsgate’s Starz since 2006.

Per the deal, Netflix will gain exclusive rights to stream Sony movies in popular franchises like “Spider-Man,” “Venom” and “Jumanji,” and new releases such as “Morbius,” “Where the Crawdads Sing,” “Uncharted” and “Bullet Train” after they are made available for home viewing post their run in theaters. The streaming platform will also have rights to showcase older films from Sony’s library in addition to the first-look agreement for all of the studio’s original movies produced for the direct-to-streaming market.

The agreement is an extension of Netflix’s pre-existing deal with Sony, whereby the streaming firm had access to all its animation films and would now encompass all film labels and genres. Sources privy to the discussions have hinted that the deal is likely to have a recording-setting price tag for a pay-one window agreement, with Netflix paying for each title on the basis of its domestic or worldwide box office haul.

Pay-one window agreements allow for films to hit the streaming platform and have been an extremely lucrative source of revenue for legacy film studios like Sony. Most of the competing Hollywood studios have a streaming service of their own. While The Walt Disney Company DIS has Disney+, Warner Bros. from AT&T Inc. T has HBO Max and ViacomCBS Inc.’s Paramount Pictures has Paramount+. Amid this backdrop, Sony’s licensing deal with Netflix has assumed strategic importance with an uptick in pandemic-induced nesting activities — games, streaming video and home fitness.

Sony has undertaken a series of concerted efforts to attain a leaner organizational structure. The company announced several changes to the Sony Group’s organizational structure to boost individual businesses and leverage the diversity of its business portfolio. Effective Apr 1, 2021, the company changed its name to Sony Group Corporation. Sony Electronics Corporation, which operated the electronics business that is the origin of Sony’s business, acquired the name Sony Corporation. Of the Sony Group’s core businesses, Game & Network Services, Music, Pictures and Financial Services have established executive structures. The electronics businesses, including Imaging & Sensing Solutions, established optimal executive structures for each business.

With gradually improving market conditions, Sony has revised its forecast for the fiscal year ending Mar 31, 2021. It expects operating revenues of ¥8,800 billion, up from the earlier forecasted figure (announced in October 2020) of ¥8,500 billion. This is due to higher-than-expected sales in all segments (except Pictures), driven by surging demand for video games, music and movies and immense popularity of the PS5 gaming console amid COVID-19-induced lockdown and travel restrictions.

The stock has surged 78.4% over the past year compared with the industry’s rise of 77.9%, driven by healthy revenues on the back of a flexible business model and solid market response for the PS5 gaming console.

We remain impressed with the inherent growth potential of this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.

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