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Is Netflix, Inc the Next HBO? DreamWorks Animation Skg Inc Deal Hits Big Cable Where It Hurts


Netflix and rivals like Amazon and Google are proving once again that the future of entertainment is not cable television.

This is not just kid stuff: Shrek, the ogre hero of the Shrek movie franchise, will have his future adventures in A Land Far Far Away from cable television, namely on the Internet subscription service Netflix, Inc. (NASDAQ:NFLX).

And, thanks to the new deal announced Monday between Netflix and DreamWorks Animation Skg Inc (NASDAQ:DWA), Shrek will be joined by many new and old animated friends from the big and small screens.

That is, the agreement doesn't just cover rights to current big-screen DreamWorks franchises like Madagascar and Kung Fu Panda. Thanks to the animation company's recent acquisition of the huge Classic Media Library, it also includes Rocky & Bullwinkle, Casper the Friendly Ghost, Lassie, Mr. Magoo, and Rudolph the Red-Nosed Reindeer.

In all, DreamWorks Animation is committing to creating 300 hours of new programming for first run on Netflix. Few specifics were offered immediately, though a Shrek series is considered a given. DreamWorks also will create an original first-run Netflix series called Turbo: F.A.S.T., based on a movie that is scheduled for theatrical release next month.

If some of the other names listed above seem a bit long in the tooth for the Internet era, you should know that DreamWorks' scheduled theatrical releases for 2014 include a movie featuring Mr. Peabody and Sherman, who were created for Rocky and Bullwinkle in its "Improbable History" segments, which first aired between 1959 and 1964.

Thanks to a separate, earlier deal between the two companies, DreamWorks theatrical movies will bypass cable television for their first home video showings. The initial worldwide showings belong exclusively to Netflix, starting next year with video rights to The Croods.

The price was not disclosed, but this is believed to be the biggest content agreement ever for Netflix-surpassing its big-bucks splashes on two other exclusives, a new season of cult favorite Arrested Development and the political satire House of Cards.

So, here's the burning question for families with children: Would you rather park the kids in front of Nickelodeon, or just hand over your Netflix login information, given that the average cable television subscription costs about $70 per month, and a Netflix subscription costs $7.99 a month?

Stock investors didn't have to overthink that one. Netflix rose more than 7% on Monday, after the deal was announced, closing at more than $229. It has risen 148% so far in 2013, making it the best performer in both the S&P 500 Index (INDEXSP:.INX) and the Nasdaq-100 (INDEXNASDAQ:NDX).

DreamWorks Animation rose more than 4% to close at $23.74. The agreement is seen as a good move for the studio, making it less dependent on the box office receipts of its usual two big theatrical releases a year.

(DreamWorks has licensed three of its characters to Nickelodeon, and produces a series based on How to Train Your Dragon for Time Warner Inc. (NYSE:TWX) Cartoon Network.)

On a very good day for Wall Street, the cable companies didn't exactly tank. Comcast Corporation (NASDAQ:CMCSA) stock rose 0.86% on Monday, closing at $40.08. Time Warner, which owns HBO as well as the cable company, rose 0.82% to close at $57.94. Verizon Communications Inc (NYSE:VZ) lost 0.7%, closing the day at $50.71.

This is not to suggest that the trend towards "cutting the cord" on cable television will suddenly reach critical mass because Shrek is on Netflix. That movement began years ago, and continues slowly. Between 2010 and 2012, the cable providers lost about 2.3 million subscribers out of a then-total 41.5 million customers.

But Netflix and its rivals, like, Inc. (NASDAQ:AMZN), Google Inc's (NASDAQ:GOOG) YouTube and Hulu, are hitting big cable where it hurts: with the younger audience.

Its strategy starts with toddlers and marches on through programming for young adults, who'd rather "binge-watch" a series than tune in when it's scheduled on television.

In addition to the DreamWorks deal, Netflix is picking up the first video rights to new films from The Walt Disney Company (NYSE:DIS) and its Pixar division when a current deal with cable channel Starz expires in late 2016.

Yup. That means Netflix subscribers, not cable subscribers, will find out what happens to the Star Wars franchise, now that it is in Disney's hands.

The obvious downside is that all of this is going to be very expensive for Netflix, and for its biggest rival, Amazon.

(See: Despite DreamWorks Animation Skg Inc Deal, There's Still a Bear Case for Netflix, Inc.)

Amazon recently got the rights to a batch of Viacom, Inc. (NASDAQ:VIA) programming, including MTV and Comedy Central as well as Nickelodeon programming. Rights to at least some of that content, including the children's favorite Dora the Explorer, previously belonged to Netflix.

In February, after the House of Cards series launched, the magazine GQ suggested that Netflix was becoming "a supercharged HBO" better suited for the times we live in. That is, GQ explained, "a seamless, multi-device on-demand world, a place where services like Netflix will be so fat with content that the idea of paying a $150 monthly cable bill for a bundle of unwatchable crap will seem as quaint as a gathering around the Sony Trinitron with Ma and Pa on Tuesday at 8 p.m. for All in the Family."

Ted Sarandos, chief content officer for Netflix, appeared to have a more modest objective: "The goal is to become HBO faster than HBO can become us," he said.

Oddly, HBO doesn't seem to be even trying to be Netflix.

See also:

Tech News: Tech News: Netflix, Inc Signs Largest Deal in Its History With DreamWorks Animation Skg Inc

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