Netflix-Epix Deal Puts TV Biz on Notice

As Netflix looks ahead to future growth, it is becoming ever more likely that it will come from streaming-video rather than DVDs.

The company's landmark deal with Epix, a pay-TV channel backed by Lions Gate, Paramount and MGM, will offer consumers instant access to some 1,500 movie titles. Netflix will pay $1 billion over five years, according to The Wall Street Journal, to get such movies as the Godfather, Indiana Jones, and Star Trek series.

The move signals the fact that Netflix is aggressively pursuing digital delivery, hoping to wean its 15 million subscribers off DVDs, which are costly to ship and warehouse.

As Netflix Chief Content Officer Ted Sarandos comments in a Fox Business interview with Epix CEO Mark Greenberg, "it radically expands and rapidly moves up our ability to bring new release movies to our subscribers in earlier and earlier windows." Clearly, the traditional TV business has just been served notice.

The company's "Watch Instantly" business continues to grow. Netflix struck a deal with US premium cable movie programmer Starz in 2008 and now offers about 1000 movies and TV episodes for instant viewing through "Starz Play." Netflix also has been adding compatible devices to its lineup so subscribers can access movies and play them on home televisions. The Xbox 360, PS3 and Wii are "Netflix-ready devices." Netflix can also stream video via a variety of players, the TiVo digital recorder, home theater systems, and Internet-connected HD televisions.

Still, the company's huge investment in streaming video could eat into Netflix profits. Netflix "must attract 500,000 new subscribers a quarter" to pay for the Epix deal, reports the Journal. "Any fewer subscribers and the company would erode its 35 percent profit margins that investors have come to love."