Start-up pay channel Epix's newly signed digital distribution deal with Netflix may make it immediately profitable but could hamper its ability to convince major cable and satellite systems to put it in more homes.
The five-year deal — valued at as much as $1 billion, according to people familiar with the transaction — will put movies from Epix's studio owners Paramount Pictures, Lionsgate and Metro-Goldwyn-Mayer on Netflix's Internet streaming service. Beginning Sept. 1, films such as "Shutter Island," "Iron Man 2" and "Kick-Ass" will become available via Netflix-on-demand just three months after their debut on Epix.
That 90-day delay is intended to placate cable and satellite companies concerned that with a growing number of people watching video on Internet-connected devices, including televisions, some may see no need to subscribe to premium cable channels.
"We're not naïve; we understand what this deal means and our partners should too," said Epix Chief Executive Mark Greenberg. "As we go into deeper dialogues, I think they will understand we have created a window of opportunity for them."
Netflix already offers movies from Walt Disney Studios and Sony Pictures via a similar deal with Starz.
Epix currently has a little more than 4 million subscribers through carriers that include Verizon's FiOS, Dish Network and Cox Cable. However, it has yet to sign with several of the biggest TV providers such as Comcast and DirecTV.
Those companies, which often insist on having exclusive access to content for extended periods of time, may now be less inclined to sign with Epix despite the 90-day window. HBO, which is the pay TV leader with about 30 million subscribers, has very restrictive deals that deny Netflix access to its movies from Warner Bros., Universal Pictures or 20th Century Fox until at least eight years after they are released.
"With Netflix becoming a real threat to distributors, as a cable operator you might not want to sign on with the Epix service," said Deana Myers, who follows the media industry for SNL Kagan. "It might make it difficult in the long term for them to get carriage, but they are getting a lot of money out of Netflix, which helps them definitely in the short term."
Although the deal represents a major increase in Netflix's spending on content, it makes the service a much beefier competitor to cable channels that show movies.
"I think the value proposition stands right alongside HBO for sure," said Netflix Chief Content Officer Ted Sarandos.
Both he and Greenberg, however, disputed the notion that deals such as this one will encourage more people to "cut the cord" and rely entirely on Netflix to watch movies instead of paying for cable.
"Our product is more complementary to cable than specifically competitive to any channel," Sarandos said.
Greenberg said Starz has seen its number of subscribers grow over the last year despite its agreement with Netflix, while the number of HBO subscribers has been relatively flat.