Analysis: Netflix, DreamWorks and the Brave New Content Licensing World

New material will be in addition to upcoming Turbo: F.A.S.T.

Netflix has signed an agreement with DreamWorks for exclusive content produced by the latter, in addition to the upcoming Turbo: F.A.S.T. (based on this summer's movie, Turbo, about a racing snail). The deal goosed the streaming service's stock considerably, sending it up 7.1 percent as of this writing.

DreamWorks appears to be angling for a presence on every major non-Disney, kid-friendly network (company founder Jeffrey Katzenberg's feud with his ex-employers at Disney is the stuff of Hollywood legend). The studio has launched Kung Fu Panda, Madagascar and Monsters vs. Aliens cartoons on Nickelodeon over the last few years, an original for TBS called Neighbors From Hell (since canceled), and a How to Train Your Dragon spinoff on Cartoon Network.

But it's the film exclusivity that makes this particular deal so promising: movie windowing is becoming a more significant part of rights negotiations, with cinema heavyweights like Steven Spielberg (another DreamWorks principal) and George Lucas going so far as to predict a massive shift from theaters to television.

The current multi-year deal covers this year's crop of DreamWorks movies: The Croods, Turbo and Mr. Peabody and Sherman. The company underwent layoffs in February, with reports citing out-of-control costs (its last 13 films had budgets of at least $135 million each).

The new agreement will represent a way to stabilize the business model, amortizing some of the expense of the pricey tent-pole movies. Last year's Rise of the Guardians, for example, which featured a starry cast and a screenplay by a Pulitzer-winning playwright, flopped extravagantly at the box office, and the company has largely abandoned product placement as of 2010, which continues to grow along with movie budgets.

Content distribution deals, like this pact with Netflix, are increasing in value, and will provide the kid-centric studio with a less widely despised way to defray the cost of slick computer animation. Netflix benefits from the deal because DreamWorks doesn't have any secondary partners who will discourage it from distributing this content to their competitors, as TV networks do. Netflix's balance sheet already contains billions in licensing commitments, and television networks are charging the streaming service more to keep up its inventory of season-late hits.

And while its stock price continues to rise, Netflix is creating a stable of original and exclusive content that doesn't have the potential to cannibalize cable viewership—something TV networks, which rely on cable subscriptions for a huge portion of revenue, will never allow.

Publish date: June 17, 2013 © 2020 Adweek, LLC. - All Rights Reserved and NOT FOR REPRINT