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Netflix's (NFLX) Movie Streaming Deal With Walt Disney (DIS): Analysts View

 December 05, 2012 11:45 AM

(By Balachander) Netflix Inc. (NASDAQ: NFLX) has announced an agreement to stream Walt Disney's (NYSE: DIS) first-run feature films to its subscribers.

Shares of Netflix retreated on Wednesday, though the stock jumped 14 percent on Tuesday when the companies announced the deal.

The multi-year agreement, financial terms of which were not disclosed, includes live-action and animated feature films, as well as Disney direct-to-video new releases.

Disney movies will be available for streaming on Netflix starting in 2016. Liberty Media's pay-TV channel Starz  holds the rights to all Disney movies released in theatres through 2015.

[Related -Netflix, Inc. (NFLX) Q4 Earnings Preview: What To Watch?]

Wall Street analysts estimate that Netflix will pay Disney between $200 million and $350 million annually to Disney.

However, some analysts have expressed concern that Netflix's rising costs for Internet video rights will weigh on the stock.

According to Zacks.com, Netflix continues to see cost escalation due to higher license and renewal fees. Netflix needs to pay $5.0 billion for streaming content obligations, of which $2.1 billion is to be paid within the next 12 months.

"Going forward, these huge payment obligations would weigh on the stock," wrote Zacks.com.

[Related -Netflix, Inc. (NASDAQ:NFLX): Can Netflix Trump Amazon.com, Inc. With New Plans?]

Netflix paid more than $350 million a year for Disney's movies, Janney Montgomery Scott analyst Tony Wible estimated in a report seen by Reuters.

"We would not be surprised if (Netflix) would need to raise capital," Wible said.

"These costs are going to sink Netflix," Wedbush Securities analyst Michael Pachter told Associated Press.

"In a bold move, Netflix has captured the exclusive rights for Disney movies in the pay window starting for films released in 2016 and beyond in what we expect was a three-year deal, the first time a major studio has sold the pay movie window to an online SVOD provider," Deutsche Bank wrote.

"The pay window is about a year post film release and so Netflix will start airing the new 2016 Disney film releases on its service starting the end of 2016 / beginning of 2017," the bank said.

Netflix's deal with Disney is one of the most significant streaming deals to date, Piper Jaffray wrote in a note seen by theflyonthewall.com.

Shares of NFLX fell 1.42 percent to trade at $85.41 at 11.21 am ET on Wednesday. The stock has been trading in the 52-week range of $52.81 to $133.43.

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