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Netflix seeks to deliver in Hollywood

The firm teams with actors on projects and buys movie rights to set itself apart from rivals.

July 06, 2007|From Reuters

Netflix Inc. has become a Hollywood player, turning to star-studded promotions and teaming with A-list actors on movie projects to raise itself above a cluttered market for online movie delivery.

Los Gatos, Calif.-based Netflix, best known for pioneering DVD rentals by mail, also owns a content acquisition firm called Red Envelope Entertainment.

The unit, formed in 2006, has been buying up small films to bolster an 80,000-title DVD library and expects to own rights to nearly 200 movies by year-end.

Red Envelope doesn't make any money for Netflix, which plows all profit back into buying more films, but the company sees it as a way of distinguishing itself from rivals such as Blockbuster Online and Inc.'s Unbox.

Netflix's success promoting obscure films to a wide Internet audience of subscribers using its movie recommendation system is drawing attention from Hollywood stars.

Actors Tim Robbins, Clint Eastwood, Maggie Gyllenhaal and Patricia Heaton have teamed with Netflix on projects, and cable channel Showtime chose the company to exclusively carry previews of its new series "Californication," in hopes of building an audience before the show hits the air.

Bob Birney, who distributed films such as "My Big Fat Greek Wedding" and "The Passion of the Christ," bypassed broader distribution for his latest film, "Open Hearts," and went straight to Netflix.

Actors also apparently see a cachet in the brand and have jumped aboard the company's promotional bandwagon, with Dennis Quaid, Kevin Bacon and Bruce Willis headlining a series of free concerts this summer at locations from their best-known films.

"I think it's good for them to get out and try to get some proprietary content. I think it does help on the margin but I don't think it's a game changer at all," said JP Morgan analyst Barton Crockett, who downgraded Netflix shares recently to "underweight."

Netflix executives say they are taking a page from HBO and Starbucks, two brands that trumped competition with original products and a better consumer experience.

"When I look back at when HBO started dabbling in original content, I don't think they could tell you where it would go," Netflix Chief Content Officer Ted Sarandos said.

"It has become more than a tactical differentiator for HBO. I don't know if that's where we're headed but it's a beautiful possibility."

The company also looks forward to more Hollywood-centric promotions that are "bigger and better than we've ever done" as it seeks to shape its image "to become a defining lifestyle brand the way Starbucks is," Netflix spokesman Ken Ross said.

Netflix has held the top spot on Internet consumer satisfaction surveys for three years running, but in April it lowered its subscriber growth forecast because of renewed competition from rival Blockbuster Inc.

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