As Ex-Partners Vie for Movie Deals, Netflix Expands Originals

Sony deal goes to Starz; Dreamworks set for new kids' show

It's got to be bitter to lose a contract to your old business partner.

That's what happened to Netflix yesterday when Starz won a deal over the streaming-and-delivery service with Sony Pictures to distribute the studio's new product. It's a deal that was one analyst pegged at $2 billion, which in itself suggests how much Netflix's business model has changed. Just two years ago, the service's entire rights budget was estimated at $700 million.

That's likely one reason that Netflix is investing in stuff like today's big deal: a new show with DreamWorks Animation called Turbo: F.A.S.T. (not to be confused with the Turbo F.A.S.T. workout software—here's hoping that's not trademarked, Netflix!) spun off of the upcoming DreamWorks movie Turbo.

DreamWorks has been agnostic thus far in terms of its distribution partners. The studio has partnered with both Nickelodeon and Cartoon Network in the past; on both networks, its offerings have focused on established IP from its movies.

But Turbo: F.A.S.T. is the first cartoon that DreamWorks has sold to a small-screen partner before the movie that it's ostensibly supporting hits theaters. This is potentially a win-win deal: DreamWorks will have a multiplatform rollout for Turbo: F.A.S.T. and Netflix will expand on its kids' offerings, which have recently included a wide-ranging deal with Disney and, with the new DreamWorks pact, will include that company's slate of 2013 films as well—The Croods, Turbo, and Mr. Peabody and Sherman.

"Netflix boasts one of the largest and fastest-growing audiences in kids' television," said DreamWorks CEO Jeffrey Katzenberg in a statement. "They pioneered a new model for TV dramas with 'House of Cards,' and now together we're doing the same thing with kids' programming."

It's a much more comprehensive slate than Netflix's pacts with other movie studios, and Netflix seems to be siding with other pay-for-content services like HBO and Showtime in its corporate opinion that original programming is the coin of the realm, at least with consumers.

Given the vast multiplicity of ways to watch serialized and theatrical video programming, subscription services like Netflix are only as good as their originals, since rights deals for established content are much lower-profile than debut series. They're also harder to come by: as linear networks like Starz, which originally partnered with Netflix on much of its sexier content, begin to see Netflix as a serious threat, the bidding wars over early windows on movies and TV shows get progressively more heated.

And those originals are good for business. Because metrics like total viewers and audience retention don't matter to a company that doesn't sell ads, the one serious datum is the company's subscriber revenue, and just before the premiere of Netflix's highest-profile original to date—House of Cards—that number rose a reported 2 million in the fourth quarter of 2012.