Netflix signs first-run TV deal

Associated Press file photo by WILFREDO LEE -- A Netflix DVD envelope and Netflix on-screen television menu are shown in this 2011 photo. Netflix Inc. is going to start running original television series from Dreamworks Animation, the companies announced Monday. Financial terms were not disclosed. Netflix said the multi-year agreement is its biggest deal ever for original first-run content and includes more than 300 hours of new programming. It expands on an existing relationship between the companies.
Associated Press file photo by WILFREDO LEE -- A Netflix DVD envelope and Netflix on-screen television menu are shown in this 2011 photo. Netflix Inc. is going to start running original television series from Dreamworks Animation, the companies announced Monday. Financial terms were not disclosed. Netflix said the multi-year agreement is its biggest deal ever for original first-run content and includes more than 300 hours of new programming. It expands on an existing relationship between the companies.

Netflix announced a deal on Monday to air television programming from Dreamworks Animation in what the company described as its biggest transaction ever for original first-run content.

Though financial details were not disclosed, Netflix Inc. said the agreement includes more than 300 hours of new TV episodes in a multiyear deal starting in 2014.

The transaction is a major coup for both companies. It helps Netflix compete with pay TV channels such as HBO and Showtime, and it gives Dreamworks a potentially lucrative outlet for its shows as it tries to shed its reliance on two or three big-budget movies each year.

“This is arguably a groundbreaking deal,” said Tuna Amobi, a Standard & Poor’s equity analyst who covers both Netflix and DreamWorks Animation.

While concerns remain about how much the deal will cost Netflix in the end, the company said it is a global deal that will allow it to debut original programs in the 40 countries where Netflix operates. That could help spread the costs over more territories and more subscribers if Netflix continues to grow overseas.

“The big question is if this is going to be an international catalyst in terms of subscriber growth,” Amobi said.

Investors hailed the deal. Netflix shares rose $15.70, or 7.3 percent, to close at $229.69 on Monday, while DreamWorks shares rose 92 cents, or 4 percent, to close at $23.73.

As part of the arrangement, Netflix doubled down on original children’s programming, hoping to strengthen its push to become a family entertainment brand. The new content should ease some of the pain of losing a range of children’s shows from Viacom Inc.’s Nickelodeon network, including future episodes of “Dora the Explorer,” which Amazon.com Inc. snapped up for its streaming service in early June.

The deal indicates DreamWorks will significantly ramp up its production of TV shows. Currently, it only produces “Dragons: Riders of Berk” for Cartoon Network, which completed a run of 20 episodes at 23 minutes each — less than 8 hours of content in all — in March.

A second season of “Dragons” is set for release in the fall, and Netflix had already contracted with DreamWorks for a series based on its upcoming film, “Turbo.” But the deal suggests that several new series will have to debut each year to fulfill the industry standard deal length of five to seven years.

Netflix has been adding original programming to its roster of older movies and TV show reruns, and is set to launch “Orange Is the New Black” in July. The company has said that for the next several years, it will contain original content spending to within 10 percent of its $2 billion in annual content costs.

Netflix’s increased focus on children’s programming is seen as a departure from the tactics of traditional premium pay TV channels such as HBO, Starz and Showtime, whose original shows tend to be tailored to adults. It also ramps up the competition with Amazon, which said last month it will produce three new original children’s shows for members of its Amazon Prime subscription plan.

Netflix has said it has 29.2 million streaming video subscribers in the U.S. and 7.1 million internationally as of the end of March. Those figures are up 5.8 million and 4.1 million respectively from a year ago.